Morning Insight 1 Apr 2013

7/30/2019 Morning Insight 1 Apr 2013

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APRIL 1, 2013

Economy News If the country has to meet the projected growth of 8% during the 12th

Five Year Plan, the Indian economy should mark a growth of more than 9per cent in the last two years of the Plan period, given that the first yearof the period is only posting a growth of 5 per cent, according to PlanningCommission deputy chairman Montek Singh Ahluwalia. (BS)

The government is considering a proposal to cap the prices of all medicinesat the time of launch. This could mean pharmaceutical companies wouldhave to seek initial price approval from the regulator before launchingproducts, a government official said. (BS)

In order to protect customer interest, regulators in financial sector andconsumer protection bodies need to keep a close watch on product designas well as financial innovation, RBI Deputy Governor K C Chakrabarty hassaid. (ET)

Travelling in trains is set to become costlier from today as the increase inreservation fee and superfast charges announced in the Rail Budget come

into effect from April 1. (BS) In a bid to tide over the power crisis in Andhra Pradesh, the Central

Electricity Authority (CEA) has agreed to mediate with Gujarat andMaharashtra for a novel swapping arrangement wherein AP would get6.5 mmscmd of natural gas to run about 1,500 Mw of idle gas-powercapacity. In return, AP will offer similar quantity of power to these statesby purchasing from the surplus states, including the eastern region. AP hascome up with this alternative idea as it cannot draw power directly fromthe surplus regions of the country due to corridor load constraints. (BS)

Power tariff across consumer categories in Andhra Pradesh has beenraised with effect from April 1 according to orders issued by the AndhraPradesh Electricity Regulatory Commission (Aperc). (BS)

Corporate News ONGC Videsh Ltd (OVL) and its partner Oil India Ltd (OIL) have closed

in on another energy asset in Africa. The consortium has offered up to $5bn to buy the combined 20% stake of Videocon and the US-basedAnadarko Petroleum in a Mozambique gas field. (BS)

Jindal Steel and Power's (JSPL's) bid to acquire a majority stake inGujarat NRE Coke's Australian subsidiary has not been successful, with thecompany managing to acquire only 31.49 per cent stake at the end of itsopen offer. (ET)

Syndicate Bank said it would raise $500 million to fund its Londonoperations through the medium term note (MTN) bond issue. (BS)

Chennai-based Polaris Financial Technology has approachedengineering and construction group L&T and India's third-largesttechnology services exporter Wipro to gauge their interest in acquiring itsservices business, three people with direct knowledge of the matter said.(ET)

Japan has emerged as a focus market for Indian bulk drug makers. Activepharmaceutical ingredient (API) makers like Ahmedabad-based DishmanPharmaceuticals, Hyderabad-based Suven Lifesciences and Chandigarh-based Ind-Swift Labs are all upbeat on the Japanese market. DishmanPharmaceuticals and Chemicals, which is supplying to eleven companies inJapan already and has seven APIs approved by the country's drugregulator, is eyeing a five-fold growth in revenue from Japan this fiscal(2012-13). (BS)

Gujarat Industrial Development Corporation (GIDC) has acquiredadditional 3 per cent stake in the state-run alkali products maker, GujaratAlkalies & Chemicals Ltd (GACL) through the open market purchase.(BS)

The Mahindra group, which forayed into the solar power sector threeyears ago, said it could add another 500 megawatts (Mw) over the next24-36 months. (BS)

Equity% Chg

28 Mar 13 1 Day 1 Mth 3 Mths

Indian Indices

SENSEX Index 18,836 0.7 (0.1) (3.1)

NIFTY Index 5,683 0.7 (0.2) (3.8)

BANKEX Index 13,033 1.7 (1.3) (9.1)

BSET Index 6,885 1.1 1.9 21.1

BSETCG INDEX 9,018 2.2 (1.8) (17.3)

BSEOIL INDEX 8,327 0.5 (3.7) (2.2)

CNXMcap Index 7,402 1.5 (1.8) (12.6)

BSESMCAP INDEX 5,805 1.3 (6.5) (20.9)

World Indices

Dow Jones 14,579 0.4 3.7 12.7

Nasdaq 3,268 0.3 3.4 10.4

FTSE 6,412 0.4 0.8 8.2

NIKKEI 12,398 0.5 5.7 18.0HANGSENG 22,465 0.7 (3.1) (1.6)

Value traded (Rs cr)

28 Mar 13 % Chg - Day

Cash BSE 3,069 91.0

Cash NSE 14,102 61.2

Derivatives 264,529 35.7

Net inflows (Rs cr)

26 Mar 13 % Chg MTD YTD

FII 567 (29.8) 10,399 54,751

Mutual Fund (22) (87.6) (1,767) (7,328)

FII open interest (Rs cr)26 Mar 13 % Chg

FII Index Futures 7,543 (51.8)

FII Index Options 34,666 (43.0)

FII Stock Futures 21,463 (16.3)

FII Stock Options 30 (99.0)

Advances / Declines (BSE)

28 Mar 13 A B T Total % total

Advances 156 1304 149 1,609 56

Declines 50 935 158 1,143 40

Unchanged - 93 30 123 4

Commodity % Chg


Crude (NYMEX) (US$/BBL) 96.8 (0.4) 6.7 5.4

Gold (US$/OZ) 1,598.8 0.3 1.7 (4.6)

Silver (US$/OZ) 28.5 0.3 (1.2) (6.8)

Debt / forex market


10 yr G-Sec yield % 8.1 8.1 8.0 8.2

Re/US$ 54.3 54.4 54.4 54.8

Sensex

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express,

BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange

15,000

16,500

18,000

19,500

21,000

Mar-12 J un-12 Sep-12 Dec-12 Mar-13


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Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2

MORNING INSIGHT April 1, 2013

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been pre-pared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views,estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

SUN TV NETWORK

PRICE: RS.390 RECOMMENDATION: ACCUMULATE

TARGET PRICE: RS.426 FY14E P/E: 19.2X

We met with the management of Sun TV Network, to gather thecompany's views on operations and future growth areas. The fol-lowing are key takeaways from our meeting:

Advertising environment continues to be uncertain, although Sun TV, on accountof strength in FMCG/ local advertising, is likely to outperform industry growthrates. The management expects that in the coming year, the company's adver-tising revenues shall be comfortably ahead of the industry growth rates, and islikely to come in at 10%-12% for the next few quarters. Significant uptick inadvertising growth in the industry is likely only by 2HFY14. As of now, the com-pany is largely reliant on better inventory utilization for advertising growth; pric-ing improvements may be seen toward 2HFY14.

TRAI's recent initiative to regulate the number of minutes of advertising on chan-nels may impact the mix of advertising growth in the near-term. Most of SunTV's channels are already compliant with the proposed regulation; however,commercial time on a few leading channels of the company (movie channels)may be marginally ahead of the new regulations (likely a minute or so ahead perhour of broadcasting, at about 13 minutes/ hour). As such, some inventory re-packaging (proposing packaging of air time with some lesser utilized channels)may be required to comply with proposed regulation in these specific channels.The management believes that: a/ these transitions, all else remaining equal,shall not be very cumbersome, and b/ that if the transitions are cumbersome, theindustry is likely to move to a higher advertising rate.

On DAS rollout, the company believes that as and when billing begins, benefits

shall begin to appear. At the present point, the company (along with the indus-try) is in a wait and watch mode. In North India, Sun TV has signed deals withMSOs on a - la- carte basis; in the South as a whole, Sun TV believes that itsbouquets in the four south Indian states shall be indispensible, and the companyshall be able to generate Rs 20-Rs 25 per subscriber. We note that on DTH plat-form, the company is able to generate Rs 38/ subscriber.

We have earlier pointed out that the confusion over several issues that DASrollout in Tamil Nadu creates has potential to trigger a run up in valuation of SunTV Network. This idea had, in the recent past, played itself out, as the Ministryof Information and Broadcasting had sought TRAI's view (which were not infavour of granting license to state sponsored enterprises running cable andbroadcasting operations). However, no developments have taken place since

then, and DAS rollout in Chennai is still in a state of confusion as legal battlescontinue. The Ministry of Information and Broadcasting has still not taken a finalcall on whether the state sponsored entities should enter broadcasting.

MSOs in Chennai are proceeding cautiously in seeding set-top boxes, in our un-derstanding, as they await clarity on regulatory issues. Issues being encounteredin Chennai are potentially issues that could be faced by the industry in the rest ofthe state. As such, the management is unable to make a judgment of the me-dium-term benefits likely from Tamil Nadu unless relevant ministry/ courts taketheir decision.

Summary table

(Rs mn) FY12 FY13E FY14E

Sales 18,472 19,335 22,586

Growth (%) -8.3 4.7 16.8

EBITDA 14,144 14,454 16,700

EBITDA margin (%) 76.6 74.8 73.9

PBT 10,224 10,161 12,048

Net profit 6,929 6,780 7,991

EPS (Rs) 17.6 17.2 20.3

Growth (%) (10.0) (2.1) 17.9

CEPS (Rs) 29.6 28.9 33.5

BV (Rs/share) 65.1 71.2 80.4

Dividend / share (Rs) 9.5 9.5 9.5

ROE (%) 28.4 25.2 26.7

ROCE (%) 26.6 24.1 26.2Net cash (debt) 2,519 5,727 8,753

NW Capital (Days) 193 190 186

P/E (x) 22.2 22.7 19.2

P/BV (x) 6.0 5.5 4.8

EV/Sales (x) 8.2 7.7 6.4

EV/EBITDA (x) 10.7 10.3 8.7

Source: Company, Kotak Securities - PrivateClient Research

COMPANY UPDATE

Ritwik [email protected]

+91 22 6621 6310


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In the past, the management has said on conference calls that DTH was provid-ing a way forward to digitization in Tamil Nadu as citizens confused with theposition of the state government, and consequently of the MSOs, were opting forDTH in a big way. In the conference call for 3QFY13, the management had saidthat DTH pick-up had been noticeably stronger in November/ December. Ourdiscussions with the management indicate that the DTH deployment in Chennaihas softened since December. This, as per management, is likely on account ofexaminations season (March- April) that tends to weaken subscriber additions. Inour understanding, it could also indicate a growing comfort of the populace withthe belief that analogue cable is unlikely to be replaced in a hurry.

The management said that cost escalation shall be moderate going forward, andthat the company did not see a significant pressure on either content costs orothers. We sense that the company believes that the sharp escalation in certaincosts and working capital seen in FY12/FY13 is likely a peak in acceleration.Going forward, we believe that costs shall see modest growth, on content orotherwise.

The regional space is likely to see a significant escalation in competitive activity.Even so, the company believes that it shall be able to manage these pressures

without a significant rise in expenses. As of now, we sense that the manage-ment thinks that the company can manage competitive activity with standardtools that it has used so far (better understanding of the audience, strong gripover content, and distribution built over a period of time). The company indi-cated that several competitors were raising content expenses to extremely highlevels and the benefits derived from the same were questionable (and to thatextent, not sustainable, at least for single genre players). The management as-serted that if weekly ratings showed a downtrend, the company will take correc-tive actions. The company would not shy away from investing aggressively inprogramming if the expenses were at least EBITDA neutral (i.e. monetizable inthe first screening). As of now, competitive intensity is under control.

Related to the above is the fact that Sun TV generates a significant amount of

cash, and operates in spaces that broadly account for only 25% of the televisionviewership of India. It has been our belief that there is a case for Sun TV, assum-ing timely DAS rollout, to expand the genres they operate in. The managementsays that it continues to believe that Hindi Entertainment is an overcrowdedspace; however, the company continues to evaluate opportunities in other lan-guages/ genres.

Among other media spaces that the company is involved in, we note that: 1/ thecompany believes that losses in IPL franchise (Sunrisers) shall be limited to Rs250-Rs 300 mn in FY14, and the franchise shall likely break-even in FY15, 2/ thecompany shall participate in Phase-3 radio FM auctions and look to enhance itsreach in smaller cities, 3/ the company shall be distributing two Tamil movies inFY14, after practically withdrawing from the business for several quarters now.

We take note of the following in making our recommendation/setting our price target for Sun TV Network

Although catering to only four languages, Sun TV Network's channels are largelyindispensable to c.40% of India's C&S population. Sun TV has historically domi-nated three of the four states it is present in, and possesses bargaining powerthat is unparalleled among significant genres in Indian television. Sun TV is a sig-nificant DAS play (assuming DAS rollout in TN also), simply because it is a must-have for most of the regions that the company operates in.

Assuming that costs shall be contained to moderate levels, and revenues fromTN geographies shall not materialize in FY14, we believe Sun TV shall still be ontrack to meet our estimates for the year. However, more aggressive estimates ofthe street (consensus EPS estimates are 7% ahead) are unlikely to be met, un-less a resolution of DAS rollout in Tamil Nadu is in favour of Sun TV.


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We maintain ACCUMULATErating on Sun TV Network with a

price target of Rs.426

Current valuations of Sun TV, we believe, do not account for a possibility thatSun TV may be able to extract due subscription revenues from Tamil Nadu.There may thus be significant upside in the stock, if Tamil Nadu market were tobe freed of state intervention, and if DAS rollout were achieved in FY14/FY15 inkey cities of Tamil Nadu.

Prior to recent decline from highs, the stock had benefited from a burst of posi-

tive news-flow and expectations of quick resolution of the issues being faced inTamil Nadu analogue market. The news-flow on these counts has been lackingin the past few months, and it is difficult to make a call on when the same mayrevive.

Sun TV has, over the past two years, been significantly impacted by allegationsmade over promoter/ promoter entities. Although we are in no position to take acall on either the resolution of the issue or the extent of damage that the samecould entail to Sun TV's operations, it is a matter of historical record that a 15%-20% decline in the stock is not uncommon as adverse news-flow peaks. News-flow in the past few weeks has been adverse, and has led to c. 20% declinefrom recent peak. We believe Sun TV Network is unlikely to breach valuations of22x FY14 PER, until negative news-flow abates/ positive news-flow is initiated.

Our fundamental view on Sun TV Network remains positive, as we believe thatwhile timing of cash flows is difficult to ascertain, Sun TV's strength in contentplaces the company well in a digital environment. We continue to think that theopportunity set for Sun TV Network is wide, and its position in the South Indianmarkets shall be strong in the near future. We would maintain an accumulativestance on the stock, while looking for more attractive price points/ improvednews-flow scenarios to invest more aggressively in Sun TV Network.

We maintain our positive stance on Sun TV Network, while we cut our price target10%, as we believe that resolution of the issues in Tamil Nadu could take longerthan we anticipated in our more recent reports. Maintain ACCUMULATE, with aprice target of Rs 426.


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Trade details of bulk deals

Date Scrip name Name of client Buy/ Quantity Avg.

Sell of shares price

(Rs)

28-Mar Brescon Corp Shresth Builders Pvt Ltd S 56,250 109.7

28-Mar Brescon Corp Pagaria Holding Pvt Ltd B 20,000 108.028-Mar Brescon Corp Black Fox Financial Pvt Ltd B 25,010 109.9

28-Mar Choice Infra Manasvi Consultancy Private B 77,933 93.3

28-Mar Choice Infra Emma Auto Ancillary Pvt Ltd B 124,293 94.4

28-Mar Choice Infra Pooja M Goel S 148,795 95.5

28-Mar Cubical Fin Cab Securities Ltd. S 110,000 37.1

28-Mar Dhenu Buildcon Sar Capital Pvt Ltd S 529,550 66.1

28-Mar Dhenu Buildcon Forever Flourishing Fin & Inv Pvt Ltd B 529,551 66.1

28-Mar Finalysis Cred Abdul Zameer Hakim Khan S 58,299 159.3

28-Mar Finalysis Cred Bharat Vanechand Shah S 27,714 159.7

28-Mar Finalysis Cred Mushtaque Ahmed Vakilahmed Khan B 49,000 158.6

28-Mar Focus Ind Natraj Capital & Credit Pvt Ltd B 86,328 58.5

28-Mar Focus Ind Tushar India P Ltd B 63,971 58.928-Mar Focus Ind Delware Polymers Pvt Ltd B 172,000 57.6

28-Mar Focus Ind Sumitra Devi S 90,000 57.6

28-Mar Focus Ind Pardeep Kumar Nehra S 90,000 57.6

28-Mar Intellivate Cap Sidhishree Tradecomm Pvt Ltd S 170,000 73.3

28-Mar Kapil Cotex Sangitaben Rajeshbhai Vekaria S 21,336 54.3

28-Mar Kapil Cotex Vekariya Rajesh Arjanbhai S 36,284 53.5

28-Mar Kemrock Inds Kalpesh Mahendrabhai Patel B 650,370 44.8

28-Mar Kemrock Inds Jhaveri Credits And Capital Ltd Mcx S 552,000 44.7

28-Mar Kwality Cred Nova Merchants Pvt Ltd S 25,500 49.6

28-Mar Kwality Cred Smita Srivastava S 25,000 49.7

28-Mar Kwality Cred Pearl Dealers Pvt Ltd S 20,000 49.6

28-Mar Lambodhara Kishanlal Devidutt Saraf S 22,000 80.528-Mar Lambodhara Halan Finance & Investment Pvt Ltd B 31,000 80.5

28-Mar North Eastern Yuthika Commercial Pvt Ltd B 1,000,000 72.8

28-Mar North Eastern Pranidhi Commerce Pvt Ltd B 300,000 73.2

28-Mar North Eastern Marubhumi Dealer Pvt Ltd S 392,088 71.7

28-Mar North Eastern Kalyani Barter Pvt Ltd S 900,052 73.4

28-Mar Photoquip India Javed Mehdi Saiyed S 146,300 43.0

28-Mar Photoquip India Vimal Jayant Soni B 55,000 43.0

28-Mar Photoquip India Taraben Jayant Soni B 30,000 43.0

28-Mar Photoquip India Jayant Purushotam Soni B 30,000 43.0

28-Mar Photoquip India Dhaval Jayant Soni B 30,000 43.0

28-Mar Ravinay Trad Lincoln Pharmaceuticals Ltd S 17,430 371.7

28-Mar Seshasayee Pap Sangameshwar properties S 480,713 251.928-Mar Seshasayee Pap Coromandel Sugars Ltd B 474,463 252.0

28-Mar Shree Om Trades York Financial Services Pvt Ltd S 42,425 102.0

28-Mar Shree Om Trades Anushikha Investments Pvt. Ltd. B 42,425 102.0

28-Mar Stampede Alingan Vyapaar Pvt Ltd B 146,000 109.6

28-Mar Stampede A. T. Invofin India Pvt Ltd S 200,000 109.6

28-Mar Stampede Shree Vishwamurte Tradinvest B 156,049 112.8

28-Mar Surya Indl Shree Padmavati Trade-Link S 24,736 50.0

28-Mar Surya Indl Mushtaque Ahmed Vakilahmed Khan B 29,000 50.0

28-Mar Titan Inds Tata Sons Limited B 38,780,000 252.1

28-Mar Titan Inds Kalimati Investment Co Ltd S 38,780,000 252.1

28-Mar Vikas Globalone Geeta Prakash Shah S 60,952 105.8

28-Mar Vikas Globalone Amber Enclave Pvt Ltd B 62,000 106.0

28-Mar Yes Bank Morgan Stanley Asia (Singapore) Pte S 2,855,125 425.2

Source: BSE

Bulk Deals


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This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construedas an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for thegeneral information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment ob-

jectives, financial situations, or needs of individual clients.

We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completenesscannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. Therecipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to inthis material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options andother derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical

analysis centers on studying charts of a stocks price movement and trading volume, as opposed to focusing on a companys fundamentals and as such, maynot match with a report on a companys fundamentals.

Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the informationdiscussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautionedthat any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses maymake investment decisions that are inconsistent with the recommendations expressed herein.

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been pre-pared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views,estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

We and our affiliates, officers, directors, and employees world wide may: (a) from time to time, have long or short positions in, and buy or sell the securitiesthereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation oract as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or haveother potential conflict of interest with respect to any recommendation and related information and opinions.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company orcompanies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations orviews expressed in this report.

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Registered Office: Kotak Securities Limited, Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400021 India.Correspondence address: Infinity IT Park, Bldg. No 21, Opp Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097.Tel No : 66056825.Securities and Exchange Board Of India: Registration No's: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230/INE 011207251, OTC INB 200808136, MCXSX INE 260808130. AMFI No: 0164.Investment in securities market is subject to market risk, please read the combined risk disclosure document prior to investing.

Gainers & Losers Nifty Gainers & LosersPrice (Rs) chg (%) Index points Volume (mn)

Gainers

ICICI Bank 1,045 2.4 8.7 5.6

HDFC Bank 625 1.8 6.2 4.9

ITC Ltd 309 1.0 5.3 8.3

Losers

Reliance Ind 773 (1.3) (5.3) 6.1

Tata Motors 269 (2.4) (3.7) 14.5

Bharti Airtel 292 (1.7) (1.9) 4.5

Source: Bloomberg

Fundamental Research Team

Dipen Shah

IT

[email protected]+91 22 6621 6301

Sanjeev ZarbadeCapital Goods, [email protected]

+91 22 6621 6305

Teena Virmani

Construction, Cement


Saurabh Agrawal

Metals, Mining


Saday SinhaBanking, NBFC, [email protected]

+91 22 6621 6312

Arun Agarwal

Auto & Auto Ancillary


Ruchir Khare

Capital Goods, Engineering


Ritwik RaiFMCG, [email protected]

+91 22 6621 6310

Sumit Pokharna

Oil and Gas


Amit Agarwal

Logistics, Transportation


Jayesh [email protected]

+91 22 6652 9172

K. Kathirvelu

Production


Technical Research Team

Shrikant Chouhan


Amol Athawale


Premshankar Ladha


Derivatives Research Team

Sahaj Agrawal


Rahul Sharma


Malay Gandhi


Prashanth Lalu


Morning Insight 1 Apr 2013

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