Event Update

Event Update December 1, 2009 Rating matrix

UTV Software (UTVSOF)

Rating

:

ADD

Target

:

Rs 491

Target Period

:

12 months

Potential Upside

:

8%

Rs 454 WHAT’S CHANGED…

Key Financials

PRICE TARGET .............................................................................................. Unchanged

(Rs Crore)

FY08

FY09

FY10E

FY11E

Net Sales

435.1

606.6

896.1

1280.5

EBITDA

65.6

-82.9

62.3

222.0

EPS (FY11E) ............................................................... Changed from Rs 38.7 to Rs 39.2

Net Profit

57.7

35.6

15.3

134.2

RATING................................................................................. Changed from BUY to ADD

FY08

FY09

FY10E

FY11E

PE (x)

19.6

43.6

101.2

11.6

Target PE (x)

21.1

47.1

109.4

12.5

EV/EBITDA (x)

20.2

NA

27.6

9.1

2.5

1.1

1.1

1.0

Valuation summary

P/BV (x) RoNW (%)

12.6

2.6

1.1

9.0

RoCE (%)

7.5

-4.6

2.6

9.1

Stock data Market Capitalisation

Rs 1552.5 Crore

Debt-Cons. (FY09)

Rs 470 Crore

Cash & Invst.-Cons. (FY09)

Rs 93.9 Crore

EV

Rs 1900.1 Crore

52 week H/L

EPS (FY10E) ................................................................... Changed from Rs 3.2 to Rs 4.5

Unlocking value... UTV Motion Pictures has signed a non-exclusive television rights syndication deal with two broadcasters in India (Colors and NDTV Imagine). For overseas telecast, B4U has acquired the non-exclusive rights to air UTV’s movies across its international markets while Channel 4 has acquired the rights to air these movies in the UK market. The rights include telecast of 18 movies. The total deal accounts for Rs 95 crore. With this the right for single movie average works out to Rs 5.3 crore per movie. Most proceeds from the deal would accrue in the current fiscal year. Key takeaways from deal •

625 / 182

Equity capital

Rs 34.2 Crore

Face value

Rs 10

MF Holding (%)

3.6

FII Holding (%)

6.0

[

•

According to the management, a major part of the total deal revenue (~85%) is expected to flow in during the current fiscal year. Out of Rs 95 crore, we have incorporated ~Rs 80 crore to flow in during FY10E while the balance Rs 15 crore will add up in FY11E revenues

•

In India, Colors has first right of telecast while NDTV Imagine has the second right of airing. Colors would have to shell out 2/3 while NDTV would pay the rest of the total value for Indian rights. For the overseas syndication deals, B4U has acquired the non-exclusive rights to air UTV’s movies across its international beams and Channel 4 has acquired the rights to air these movies in the UK market. These channels will have the right to telecast a fixed number of runs of each movie

•

Out of the total 18 movies, most movies have been released during the last and current fiscal year while seven unreleased movies are slated to release in the coming two to three quarters

•

The movies slated for TV telecast include some big hits like Wake Up Sid, Kurbaan, Dev D, Kaminey and Delhi 6

•

With this non-exclusive deal with all four broadcasters including Indian and overseas, UTV has the right to further sell syndicate TV rights to any other broadcaster during the same period

Price movement (Stock vs. Nifty) 600

6,000.00

500

5,000.00

400

4,000.00

300

3,000.00

200

2,000.00

100

1,000.00

0 Oct-08

0.00 Jan-09

May-09

Price (L.H.S)

Jul-09

Oct-09

Nifty (R.H.S)

Analyst’s name Karan Mittal karan.mittal@icicisecurities Naval Seth [email protected]

ICICIdirect.com | Equity Research

The company has signed a non-exclusive TV rights syndication deal with two broadcasters, Colors and NDTV Imagine in India and two broadcasters B4U and Channel4 for the overseas market, for the telecast of UTV’s 18 movies at a value of Rs 95 crore

UVT Software (UTVSOF)

Valuation At the CMP of Rs 454, the stock is trading at 11.6x FY11E EPS of Rs 39.2. The company has various movies lined up for release in the coming quarters and the interactive segment is also expected to post exponential growth with handsome profitability once the owned IPs are launched. We have used the SOTP method to value the stock at Rs 491. Our target price discounts FY11 EPS by 12.5x. We are changing our rating on the stock from BUY to ADD. Exhibit 1: Performance Highlights (Rs Crore) Net Sales EBITDA EBITDA Margin (%) Depreciation Interest Reported PAT EPS (Rs)

Q2FY10 Q2FY10E 237.7 145.3 20.1 13.7 8.4 9.4 2.0 1.5 11.9 0.7 8.3 9.5 2.4 2.8

Q2FY09 170.9 -7.8 -4.6 1.6 -1.3 25.1 7.4

Q1FY10 QoQ (Chg %) YoY (Chg %) 115.4 106.0 39.1 -34.1 -158.9 -356.0 -29.5 3796 bps 1303 bps 1.8 8.3 24.9 6.1 96.1 -1035.6 -23.3 -135.6 -67.0 -6.8 -135.6 -67.0

Source: Company, ICICIdirect.com Research

Segmental Analysis Movies After a tough Q1FY10, the company has been looking out for different revenue streams to aid the losses incurred during the same period. The company earned ~ Rs 21.64 crore from the sale of satellite rights of the movies. With increasing viewership on the idiot box (television) broadcasters are paying huge amounts to air the latest movies on their channels. The movies that are unable to perform in the box office, earn revenues from the satellite rights. Movies like Main Aur Mrs Khanna and What’s your Rashee were unable to do business in the box office. However, the company would earn revenues from the sale of satellite rights. The movie segment contributed ~55.8% of the total revenues as compared to 30.6% during Q1FY10. The rest of the fiscal will see a good mix of small budget and big budget movies coming up. We expect movie segment to contribute ~49% of total topline in FY10E. Exhibit 2: Movies slated for TV telecast (name of 4 movies not available) Name of the Movie Dev-D Delhi6 Oye Lucky! Lucky Oye! Agyaat Kaminey Aage se Right Wake Up Sid Whats your Rashee Main Aur Mrs Khanna Kurbaan Chance Pe Dance Peter Gaya Kaam Se Pan Singh Tomar Phillum City

Status Released Released Released Released Released Released Released Released Released Released Yet to be released Yet to be released Yet to be released Yet to be released

Source: Company, ICICIdirect.com Research

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UVT Software (UTVSOF)

Exhibit 3: Segmental revenue Particulars Television Film Interactive New Media * Broadcasting *

FY07 FY08 FY09 FY10E

Total gross revenue Inter-segmental elimination Other Operating Income Net Revenue

176.1 438.6 625.6 -1.2 -4.4 -18.4 0.9 0.0 174.9 435.0 607.2

76.7 100.6 131.7 72.1 242.4 276.1 27.4 95.6 110.5 18.0 89.3

115.2 427.5 224.9 9.5 111.5

FY11E CAGR(08-11) % 157.3 16.0 520.3 29.0 460.1 68.9 52.0 69.8 130.4 20.9

888.6 1,320.1 -24.5 -39.6 32.0 896.1 1,280.5

44.4

*CAGR (09-11) Source: Company, ICICIdirect.com Research

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UVT Software (UTVSOF)

Outlook & Valuation Outlook The company has started selling TV rights for movies to increase the revenue streams for the movie segment. It has sold the television rights to Colors, NDTV Imagine, B4U and Channel 4 for Rs 95 crore. This includes telecast of 18 movies out of which seven movies are yet to be released. It has already accrued revenue from satellite rights of the unreleased movies to de-risk box office performance. The broadcasting business is expected to break even by the end of FY11E while the gaming business is also expected to generate higher returns once the three AAA titles developed by Ignition for PS3 and XBOX 360 are released during FY11E. Till then, profitability is expected to remain subdued. Owing to better realisation in the movie segment, we have revised our revenue upwards by 16% and 3% for FY10E and FY11E. With an increase in movie revenues, which would directly add up to EPS, we have revised upwards the EPS by 40.1% and 1.4% for FY10E and FY11E, respectively. Exhibit 4: Revised estimate Particulars Revenue EBITDA EBITDA Margin % PAT EPS

Old 837.9 47.9 5.7 10.9 3.2

FY10E New 896.1 62.3 6.9 15.3 4.5

% Change 6.9 30.0 123 bps 40.7 40.1

Old 1,263.7 216.5 17.1 132.3 38.7

FY11E New 1280.5 222.0 17.3 134.2 39.2

% Change 1.3 2.5 20 bps 1.4 1.4

Source: Company, ICICIdirect.com Research

Valuation We have used the SOTP method to value the company. We value the different segments as explained below: Film: We value this business at an EV/EBITDA of 7.2x FY11E EBITDA. We value movies at ~20% premium to the global filmed entertainment universe, which are trading at an average multiple of 6.0x. We feel this premium is justified given the growth and scarcity premium applied to UTV. Interactive: The interactive business is valued at one year forward EV/EBITDA multiple of 9.1x. This is in line with global peers. We believe this multiple is justified given the huge growth prospects for this segment. New media: We value this business at 1.5x FY11E EV/sales. Broadcasting: We have valued the broadcasting business at 5.7x FY11E sales. This multiple is at a 10% discount to domestic peers. We believe this discount is justified given the smaller target audience for UTV’s channels. Television: We value this business at EV/sales of 0.3x FY11E sales. This is at a 10% discount to Balaji Telefilms.

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UVT Software (UTVSOF)

At the CMP of Rs 454, the stock is trading at 11.6x FY11E EPS of Rs 39.2. The company has various movies lined up for release in the coming quarters. The interactive segment is also expected to post exponential growth with handsome profitability once the owned IPs are launched. We have maintained our SOTP target price of Rs 491. Our target price discounts the FY11 EPS by 12.5x. We are changing our rating on the stock from BUY to ADD. Exhibit 5: SOTP valuation Segment

Multiple EV/EBITDA Multiple FY11 EBITDA EV 7.2 165.5 1,197.8 9.1 58.5 533.4

Film Interactive

Television New Media Broadcasting

EV/Sales Multiple (x) 0.3 1.5 5.7

FY11 Sales 157.3 52.0 130.4

EV 44.1 78.0 739.4

Value EV adjusted for MI 922.3 364.3 EV adjusted for MI 42.1 78.0 739.4

Total EV for the Firm Less: Net Debt Equity Value

2,146.1 468.5 1,677.6

Number of Equity Shares Fair Value per share

3.4 491

Source: Company, ICICIdirect.com Research

Exhibit 6: Valuation table

FY09 FY10E FY11E

Sales Growth (Rs cr) (%) 606.6 39.4 896.1 47.7 1280.5 42.9

EPS Growth (Rs) (%) 10.4 -55.1 4.5 -57.0 39.2 774.9

PE (x) 43.6 101.2 11.6

EV/EBITDA (x) NA 27.6 9.1

RoNW (%) 2.6 1.1 9.0

RoCE (%) NA 2.6 9.1

Source: Company, ICICIdirect.com Research

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UVT Software (UTVSOF)

ICICIdirect.com coverage universe Sun TV Idirect Code

SUNTV

MCap (Rs Cr)

13,113.0

UTV Software Idirect Code

UTVSOF

MCap (Rs Cr)

1,552.5

CMP Target % Upside

332.8 342.2 2.8%

FY09 FY10E FY11E

Sales (Rs Cr) 1039.4 1257.9 1469.4

CMP Target % Upside

454.0 490.6 8.1%

FY09 FY10E FY11E

Sales (Rs Cr) 606.6 896.1 1280.5

EPS (Rs) 9.3 11.6 13.7

PE (x) EV/EBITDA (x) 35.6 17.7 28.7 13.8 24.3 11.3

RoNW (%) 20.9 21.6 21.3

RoCE (%) 28.2 29.9 29.7

EPS (Rs) 10.4 4.5 39.2

PE (x) EV/EBITDA (x) 43.6 NA 101.2 27.6 11.6 9.1

RoNW (%) 2.6 1.1 9.0

RoCE (%) NA 2.6 9.1

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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UVT Software (UTVSOF)

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Outperformer, Performer, Hold, and Underperformer. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: 20% or more; Buy: Between 10% and 20%; Add: Up to 10%; Reduce: Up to -10% Sell: -10% or more; Pankaj Pandey

Head – Research

[email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 7th Floor, Akruti Centre Point, MIDC Main Road, Marol Naka Andheri (East) Mumbai – 400 093 [email protected]

ANALYST CERTIFICATION We /I, Karan Mittal MBA Naval Seth MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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