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Economy News Corporate News SEPTEMBER 16, 2008 Economy News Equity 4 Call rates hardened yesterday to touch a high of 12.5% as liquidity in the % Chg money market came under strain due to outflows towards payment for 15 Sep 08 1 Day 1 Mth 3 Mths advance tax and debt auction. Call rates closed at 10.50-10.60%, off a high of 12.50%, the highest since April 17, 2006. It had ended at 9.80- Indian Indices BSE Sensex 13,531 (3.4) (8.1) (12.1) 10% on Saturday (BS) Nifty 4,073 (3.7) (8.1) (10.9) 4 The rupee hit a two-year low of Rs.46 / USD in early morning trade BSE Banking 6,792 (3.4) (1.6) (6.4) yesterday. Latest data shows that the Reserve Bank of India (RBI) had BSE IT 3,597 (5.5) (7.7) (18.5) pumped in $7 billion, on a net basis, in the forex markets during April- BSE Capital Goods 11,367 (4.0) (6.4) (6.1) July 2008 to stem the slide in the value of the rupee. (BS) BSE Oil & Gas 8,814 (3.3) (13.6) (12.0) NSE Midcap 5,313 (4.3) (8.5) (13.6) 4 Expressing optimism that the improved industrial growth in July would BSE Small-cap 6,380 (4.9) (10.3) (16.8) continue in the days ahead, former head of the PM's economic panel, C. World Indices Rangarajan, has said that, inflation may come down to 10% by Dow Jones 10,918 (4.4) (6.4) (11.0) December from over 12 per cent at present (BS) Nasdaq 2,180 (3.6) (11.1) (11.9) FTSE 5,204 (3.9) (4.6) (10.2) Corporate News Nikkei 12,215 0.9 (10.9) (17.0) Hangseng 19,353 (0.2) (14.1) (19.5) 4 Emami Ltd has more than doubled the open offer price for Zandu Pharmaceutical Works to Rs.15000 per share from Rs.7315 per share Value traded (Rs cr) earlier. (BL) 15 Sep 08 % Chg - Day 4 Reliance Capital is raising $1 billion from foreign investors for its foray Cash BSE 4,349 (13.3) into the private equity business. The fund will invest in the Indian equity Cash NSE 11,936 (4.1) market after concluding the capital raising plan by December 2008 Derivatives 61,186 6.4 according to Sam Ghosh, chief executive officer (BS) Net inflows (Rs cr) 4 State Bank India (SBI) has lined up an information technology spend 12 Sep 08 % Chg MTD YTD of Rs.30bn over the next two years to ensure robust net banking, mobile banking and ATM systems to help shift 50% transactions from branches FII (856) (39) (3,535) (33,105) to alternative channels. (BS) Mutual Fund 210 (514) 212 10,412 4 Titagarh Wagons is poised to take joint control of Cimmco Birla, a sick FII open interest (Rs cr) wagon unit promoted by the S K Birla Group. A fresh proposal has been 12 Sep 08 % Chg placed before the BIFR to revive the company. (BL) FII Index Futures 12,955 0.8 4 Educome has tied up with Intel, Dell and Acer to drive up the use of FII Index Options 22,255 (1.5) technology in classroom teaching and learning in schools across India (BL) FII Stock Futures 19,844 (5.5) FII Stock Options 1,341 2.5 Advances / Declines (BSE) 15 Sep 08 A B S Total % total Advances 11 235 47 293 12 Declines 193 1489 395 2,077 87 Unchanged - 22 9 31 1 Commodity % Chg 15 Sep 08 1 Day 1 Mth 3 Mths Crude (NYMEX) (US$/BBL) 92.3 (3.6) (18.9) (31.5) Gold (US$/OZ) 786.7 2.8 (1.3) (11.9) Silver (US$/OZ) 11.1 2.3 (15.2) (37.0) Debt / forex market 15 Sep 08 1 Day 1 Mth 3 Mths 10 yr G-Sec yield % 8.44 8.34 9.23 8.39 Re/US$ 46.06 45.55 43.41 43.03 Sensex 21,100 18,975 16,850 14,725 12,600 Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange MORNING INSIGHT September 16, 2008 INITIATING COVERAGE ZEE ENTERTAINMENT ENTERPRISES LTD (ZEEL) Saurabh Gurnurkar [email protected] +91 22 6621 6310 PRICE: RS.217 RECOMMENDATION: ACCUMULATE TARGET PRICE: RS.254 FY10E: EV/EBITDA: 12X; P/E: 17.0X Zee Entertainment (ZEEL) is one of India's top three broadcasters with a network of sixteen television channels including its flagship channel- the Hindi general entertainment channel (GEC), Zee TV. Zee TV, is a strong and still-stable number two in India's biggest TV genre despite recent competition from three new entrants. ZEEL's key competitive strength, in our opinion is its bouquet of competitively-priced channels that encompass various genres of broadcasting, and also enjoy strategic positioning in their target markets. In projected financials we estimate a 17.5% CAGR in revenues over FY08- Stock details 10E as they grow to Rs.25.3bn in FY10E from Rs.18.3bn in FY08. Within the BSE code : 505537 revenue streams expect advertising revenues to grow at a CAGR of 19% to NSE code : ZEEL Rs.13.2bn in FY10E from the Rs.9.3bn in FY08, subscription revenues on the Market cap (Rs bn) : 94.08 Free float (%) : 58.46 other hand are expected to grow at a CAGR of 17% to Rs.10.1bn in FY10E 52-wk Hi/Lo (Rs) : 410/205 from the Rs.7.4bn in FY08. Avg. Daily Vol BSE+NSE : 1065711 Shares o/s (mn) : 433.6 ZEEL recorded a 730bps EBITDA margin increase in FY08 despite Rs.320mn of losses from its Zee Next channel. We estimate the company's margins to further increase 330bps by FY10E to 32.8% on the back of ad revenue Summary table growth and a ramp-up in subscription revenues, aided by increasing DTH (Rs mn) FY08 FY09E FY10E contributions. We estimate an EPS CAGR of 20% over FY08-10E; an EPS of Rs.10.4 in FY09E and Rs.12.8 in FY10E from Rs.8.8 in FY08. Sales 18,354 21,994 25,335 Growth (%) 27.4 19.8 15.2 We arrive at a price target of Rs.254 (20x FY10 earnings) for the ZEEL stock. EBITDA 5,423 6,958 8,318 Our target multiple is at a 20% discount to ZEEL's three- year average EBITDA margin (%) 29.5 31.6 32.8 trading multiple (25x) while in line with its five -year average trading Recurring PAT 3,833 4,517 5,536 Net debt (cash) 815 (576) (3,066) multiple. A discount is justified in our opinion after factoring in the EPS (Rs) 8.8 10.4 12.8 increased competitive intensity through new GEC launches, accompanying Growth (%) 61.6 17.8 22.6 fragmentation of the Indian TV broadcasting industry and also our own CEPS 9.4 11.0 13.4 expectations of a slower ad-revenue growth trajectory. DPS (Rs) 2.0 2.0 2.0 ROE (%) 14.0 15.0 16.4 While our arrived target price, points to a limited upside from current ROCE (%) 19.8 22.5 24.2 levels, we note that ZEEL, in our view, is possibly one of the better EV/Sales (x) 5.3 4.4 3.8 broadcasters to play the significant subscription revenue opportunity being EV/EBITDA (x) 18.0 13.8 11.6 P/E (x) 24.5 20.8 17.0 ushered in by the changing distribution landscape in India. This, in addition P/Cash Earnings 23.1 19.7 16.2 to the relative positioning of ZEEL's bouquet and currently stable P/BV (x) 3.3 3.0 2.6 positioning of its flagship GEC property despite new competition, keep us Source: Company, sanguine about its longer term prospects and explains our ACCUMULATE Kotak Securities - Private Client Research rating. At the same time concerns on the macro environment, its impact on ad revenue trends and elevated competitive intensity for its flagship GEC will likely weigh on the stock, in the near term. Investment rationale q Optimistic outlook for Indian M&E industry, over the longer term; televi- sion estimated to grow at a faster rate within segments: The health of the Indian M&E industry is largely influenced by the economic growth profile of the country. We opine rising incomes, low media-penetration, increasing consumer- ism and consistent economic growth expectations underpin a secular long-term trajectory for the industry. Within this, the TV segment driven by structural changes in the distribution format is expected to grow from the current Rs.216bn to a projected Rs.400bn by 2010E, supported by a healthy macro en- vironment. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2 MORNING INSIGHT September 16, 2008 q Is growth in advertising spends likely to slow down? According to FICCI- PwC, Indian advertising spend on television is expected to register 20% CAGR over 2007-12E, to reach Rs.200bn in the terminal year. Expectations of a slow- down in GDP growth have given rise to apprehensions on sustainability of TV ad spends. While we do expect a moderation in ad spend trends given the slowing economy, we do not expect ad spends to come off sharply either.
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