This grade indicates that the fundamentals of the company are ‘Good’ relative to other listed equity securities in India.
Good’ relative to other listed equity securities in India. With respect to valuations, CRISIL Equities has assigned a valuation grade of “5/5” indicating that the stock has ‘Strong Potential Upside’ (Fundamental value of Rs 548, from the current market price of Rs 420. The grades are not a recommendation to buy/sell or hold the graded instrument, or a comment on the graded instrument’s future market price or its suitability for a particular investor.
— CRISIL Equities has assigned a CRISIL IER Fundamental Grade “3/5″ (pronounced “three on five”) to UTV Software Communications Ltd. (UTV). This grade indicates that the fundamentals of the company are ‘
The assigned fundamental grading reflects UTV’s position as the market leader in the Hindi films business, its diversified revenue mix, strong management capability and expected improvement in profitability as its investments in the gaming and television broadcasting businesses begin to pay off. UTV’s comprehensive business model has enabled it to rope in Walt Disney as a strategic partner with a 60% stake (Walt Disney’s voting rights are capped at 32.1% for a period of 4 years ending November 2012). CRISIL Equities believes this association with Walt Disney is a positive factor from a strategic perspective and will also provide it access to overseas markets. The grading is, however, tempered by the inherent risks associated with the films business, such as project execution risk and susceptibility to changing audience tastes and preferences, and uncertainty of success in the games development business.
CRISIL Equities expects UTV to display robust revenue growth of 37% CAGR over the next 3 years to touch Rs 15.7 billion by FY12 on the back of strong growth in the films business, the broadcasting segment gaining traction, and the planned release of 3 large Intellectual Properties in the console games development business. With investments beginning to generate returns and content being effectively monetised across various media platforms, CRISIL Equities expect UTV’s profitability to improve. The EBIT margin of the company is expected to improve markedly from negative 15% in FY09 to around 17% in FY12. Driven by higher profitability, CRISIL Equities expects Earnings per share (EPS) to jump to Rs 53 in FY12 after a 47% slump to Rs 7.2 in FY10.
UTV’s return on capital has been adversely impacted by investments made in the television broadcasting and gaming businesses (Rs 7 billion as of March 2009). During FY09, its return on equity (RoE) was 6.8%. CRISIL Equities believe it will take another 12-18 months for investments made in these businesses to pay off. Consequently, UTV’s RoE is projected to improve significantly only after FY11 and touch 16% by FY12.
On the valuation grading, CRISIL Equities has used Sum of the Parts (SOTP) approach to arrive at the fundamental value for UTV. Based on the SOTP method, the fundamental value for UTV is estimated at Rs 548 which translates into a valuation grade of “5/5” indicating that the stock has ‘Strong Potential Upside’ from the market price of Rs 420 (as on October 30, 2009)
Source: Press release distribution via India PRwire
Notes to Editor
About the company
UTV Software Communications Ltd. began operations in 1990 with production of television content and ad films. Subsequently, it entered the movie production and distribution business. Over the last 3 years, The company has become increasingly aggressive in its efforts to pursue growth, channelising huge investments in its films businesses and entering the television broadcasting, gaming, and new media businesses. Between FY07 and FY09, its capital employed jumped by close to 6 times to Rs 19 billion. During the same period, revenues grew at a CAGR of 86% to Rs 6 billion. The company has forayed into the films business contributed 45% to the topline in FY09, while the television content and gaming segments accounted for 22% and 18% of revenues respectively. With content being a common feature across each business, UTV is focused on creating content and owning intellectual property rights for the same for exploitation across all major media different platforms.
About CRISIL Independent Equity Research
CRISIL IER (Independent Equity Research) is an independent, unbiased opinion on fundamentals and fair valuation of the company. CRISIL IER encompasses a comprehensive analysis of the four pillars of sustainable value creation, namely: Industry and business prospects, financial performance & outlook, management capabilities and corporate governance. A CRISIL IER: Fundamental Grade ‘5/5’ indicates ‘Superior’ fundamentals and a fundamental grade of ‘1/5’ indicates ‘Poor’ fundamentals relative to other listed equity securities in India. A CRISIL IER grading should not be construed as a recommendation to invest in the graded security nor a comment on suitability of a particular investment for the reader.
About CRISIL Fundamental and Valuation (CFV) Matrix
The CFV matrix addresses two important aspects in investment making decision – Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade). CRISIL’s Fundamental Grade represents an overall assessment of the fundamentals of the company graded in relation to other listed equity securities in India. The grade facilitates easy comparison of fundamentals between companies, irrespective of the size or the industry they operate in. CRISIL’s Valuation Grade represents an assessment of the potential value in the company stock for an equity investor over a 12 month period. The grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).
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Last updated: 30 June, 2009
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