Hinduja Ventures Ltd Result Update: Q4 FY 12

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1 Hinduja Ventures Ltd Result Update: Q4 FY 12 C.M.P: Rs Target Price: Rs Date: June 18 th, 2012 BUY Stock Data: Sector: Media Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) 2064 BSE Code Market Cap (Rs.In mn) Share Holding Pattern SYNOPSIS Hinduja Ventures Ltd is the Holding company of One of India s largest Media Company i.e. IndusInd Media and Communication Limited. During the quarter ended, the Net profit of the company increased to Rs millions and registering a growth of 25.91%. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 09% over 2011 to 2014E respectively. 1 Year Comparative Graph Hinduja Ventures Ltd has Recommendation of Final Dividend of Rs. 15/- per equity share of Rs. 10/- each for FY BSE SENSEX Hinduja Ventures Ltd IMCL has acquired 50.70% stake in Jagsumi Perspectives Private Limited during the Year & this effective from 1 st October Years Net sales EBITDA Net Profit EPS P/E FY FY 13E FY 14E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Hinduja Ventures Ltd Zee Entertainment Enterprises Sahara One Media and Entertainment Raj Television Network Investment Highlights Q4 FY12 Results Update Hinduja Ventures Ltd disclosed a phenomenon rise in consolidated net profit for the quarter ended March During the quarter, the Net Profit of the company surged 25.91% to Rs million from Rs million in the same quarter previous year. Net sales for the quarter decrease to 4.66 % to Rs million from Rs million, when compared with the prior year period. It reported earnings of Rs a share during the quarter, registering 25.91% increase over previous year period. Quarterly Results - Consolidated (Rs in mn) As At Mar-12 Mar-11 %change Net sales Net Profit Basic EPS

3 Break up of Expenditure Segment wise Revenue 3

4 Recommendation of Final Dividend Hinduja Ventures Ltd has has considered and approved the Recommendation of Final Dividend of Rs. 15/- per equity share of Rs. 10/- each for financial year , subject to the approval of shareholders at the Annual General Meeting. Company Profile Hinduja Ventures Limited is the holding company of one of India s largest integrated media companies i.e. IndusInd Media and Communication Limited ( IMCL ). IMCL is one of the largest multi system operators in the country. With an estimated 8.5 million subscribers across 27 major cities, the company offers over 301 channels in the digital mode (it also offers about 90 channels in the analog mode, which are a part of the digital package). It has a backbone of over 10,000 kms of hybrid fibre optic network through which it also offers broad band services with national ISP license. Over and above Digital cable distribution, the Company is also into content creation, acquisition & aggregation for TV services. IMCL has successfully deployed over 400,000 set top boxes for converting analogue home to digital homes. The Company is fully geared up to meet the subsequent addressable digital cable roll out as per Government policy & regulations. Hinduja Group The Hinduja Group is a multi-billion dollar global investment and banking group with a diversified global portfolio of holdings across the manufacturing services and banking sectors. The Group, founded by Shri P.D. Hinduja in 1914, has activities across three core areas Investment Banking, International Trading and Global Investments. As part of its Global investments, the Group owns businesses in Automotive, Information Technology, Media, Entertainment & Communications, Banking & Finance, Infrastructure Project Development, Chemicals & Agri business, Energy, Real Estate and Healthcare. The Hinduja Group also supports charitable and philanthropic activities across the world through the Hinduja Foundation. 4

5 Business Segment Media and Communications - consists of various media / communication related activities spearheaded by the Corporate Group. This segment also includes all activities relating to increase in shareholders value in subsidiaries belonging to the Company in this sector. Real Estate The Company has real estate activities in the form of property development. The segment also identifies potential investment opportunities in real estate properties either itself or through participation in the form of shares or securities of real estate companies. Treasury This segment consists of activities relating to deployment of surplus funds and existing stock in trade/ investments in shares and securities, other than subsidiaries. Subsidiaries Direct Subsidiaries IndusInd Media and Communications Limited Grant Investrade Limited HTMT Telecom Private Limited (up to 31st December, 2010) IDL Speciality Chemicals Limited Indirect Subsidiaries USN Networks Private Limited Gold Star Noida Network Private Limited Seven Star Information Technology Private Limited 5

6 Bhima Riddhi Infotainment Private Limited United Mysore Network Private Limited Apna Incable Broadband Services Private Limited Sangli Media Services Private Limited Sainath In Entertainment Private Limited Sunny Infotainment Private Limited Goldstar Infotainment Private Limited Ajanta Sky Darshan Private Limited V4U Entertainment Private Limited Darpita Trading Company Private Limited RBL Digital Cable Network Private Limited Vistaar Telecommunication and Infrastructure Private Limited Associates Planet E-Shop Holdings India Limited IN Entertainment (India) Limited Enterprises where common control exists Aasia Management and Consultancy Private Limited Hinduja Group India Limited Hinduja Realty Ventures Limited Hinduja Global Solutions Limited APDL Estates Limited 6

7 Financials Results 12 Months Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) FY11 FY12E FY13E FY14E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Minority Interest Net Profit Equity capital Reserves Face value EPS

8 Quarterly Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) 30-Sep Dec Mar Jun-12E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Minority Interest Net Profit Equity capital Face value EPS

9 Key Ratios Particulars FY11 FY12 FY13E FY14E No. of Shares(In Million) EPS (Rs.) EBITDA Margin (%) 35.78% 40.49% 40.10% 40.65% PBT Margin (%) 28.96% 31.30% 30.74% 31.38% PAT Margin (%) 23.10% 22.62% 22.38% 22.87% P/E Ratio (x) ROE (%) 16.32% 16.73% 15.57% 14.79% ROCE (%) 25.53% 30.32% 28.68% 27.18% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts: Net Sales & PAT 9

10 P/E Ratio (X) Debt Equity Ratio 10

11 EV/EBITDA(X) P/BV Ratio 11

12 Outlook and Conclusion At the current market price of Rs , the stock PE is trading at 6.67 x FY13E and 6.11 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 09% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 3.08 x for FY13E and 2.87 x for FY14E. Price to Book Value of the stock is expected to be at 0.86 x and 0.75 x respectively for FY13E and FY14E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Short term investment. Industry Overview The Media and Entertainment (M&E) industry in India recorded revenues of US$ 16.3 billion in 2010 and is expected to be in excess of US$ 25 billion in the next four years, according to an Ernst & Young report Spotlight on India's Entertainment Economy.' Growing digitisation, media consumption and improving demographics are the most important drivers responsible for the growth of this industry. Factors such as economic liberalisation, near double-digit annual growth, fast-growing middle class and a huge volume of demand for leisure and entertainment, have enticed global media companies to scale up investments in India. The Indian media and entertainment industry now finds itself at a new turning point digital media. A rise in mass broadband adoption is expected, led by the launch of 3G and 4G services. By 2015, 90 per cent of India's projected 187 million broadband subscribers will access the net through wireless devices. 12

13 The M&E industry in India has been, and will continue to be, one of the biggest beneficiaries of India's favourable demographics," as per Farokh Balsara, Ernst & Young's media and entertainment leader for Europe, West Asia, India and Africa. Some of the important findings in the report indicate that media and entertainment industry is a lucrative option for making investments. India's increasing per capita income, growing middle class and working population are generating huge domestic demand for leisure and entertainment. India has more than 600 television channels, 100 million pay-television households, 70,000 newspapers and produces more than 1,000 films annually. India has diverse regional markets with different cultures, languages and content preferences. These markets provide global media and entertainment companies' ample amount of opportunities to deliver localised content. India's favourable regulations and reforms are creating investment opportunities for global media and entertainment companies. "The growth strategies in most companies in the US and Western Europe are linked to India and other emerging markets," as per John Nendick, Global Media and Entertainment Leader at Ernst & Young. "However, to succeed in India, global media and entertainment companies need to navigate unique challenges in the areas of content localisation, distribution and pricing, regulations and piracy." he added. Television According to a report by KPMG and a leading industrial body, India is the world's third largest Television (TV) market with almost 138 million TV Households (HHs) next to China and USA. Cable and Satellite (C&S) penetration has reached around 80 per cent with high growth shown by the direct-to-home (DTH) service. New technologies like high definition (HD), Set Top Boxes (STBs) with inbuilt recorders and delivery 13

14 platforms like mobiles are evolving rapidly, creating ample opportunities for innovation and growth. By 2015, television is expected to account for almost half of the Indian M&E industry revenues, and more than twice the size of print, the second largest media sector. Radio The radio sector in India has taken approximately 50 years to grow from infancy to adolescence. Regulatory reforms, including opening up of the sector to private players and replacement of the fixed license fee regime with a revenue-sharing license regime has led to a resurgence of this sector. Digitisation Digital platforms include digital cable, DTH and IPTV platforms as opposed to the traditional analog cable which still dominates the Indian market. The number of analog cable subscribers is witnessing a flat or de-growth with increasing penetration of digital distribution systems. The digital subscribers are expected to surpass the analog subscribers by The Government is attempting to steadily shift towards digital by making it compulsory to convert to digital addressable infrastructure. March 31, 2015 has been set as the revised deadline by Telecom Regulatory Authority of India (TRAI) for digitisation of the entire industry in a phased manner. Delhi, Mumbai, Kolkata and Chennai are required to shift to digital addressability by March 31, The next phase will include 35 cities with population greater than one million to make the transition by March 31, All urban areas are expected to convert by November 30, 2014 and the remaining areas by March 31,

15 Internet The e-commerce market in India will grow by almost 50 per cent to touch Rs 46,000 crore (nearly US$ 10 billion) this year, as per an industry report. This growth is mainly driven by the online travel industry, which contributes more than three-fourths to the online commerce industry in India, according to a report released recently by the Internet and Mobile Association of India (IAMAI). India's online commerce industry grew from Rs 20,000 crore (nearly US$ 4.34 billion) in 2009, to almost Rs 32,000 crore (nearly US$ 7 billion) in Over 75 per cent of India's total e-commerce comes from its online travel market, which includes booking rail and air tickets, hotel accommodations and tour packages. That segment alone is expected touch Rs 40,000 crore (nearly US$ 9 billion) by year end, said the report. Internet users from India come second only to those in the United States in terms of uploading content on YouTube. Bharti Enterprises and Japanese internet company Softbank have set up a 50:50 joint venture (JV) firm - Bharti Soft-Bank Holdings, to work on mobile internet. Bharti Softbank Holdings (BSB) will participate in the mobile internet ecosystem's growth in India, with an emphasis on social media, gaming and e-commerce. "India, which has emerged as the second largest mobile market in the world, stands at the cusp of another revolution - mobile internet," according Kavin Bharti Mittal, Head of Strategy and New Product Development, BSB. Newspaper The newspaper industry, which is facing declining readership in many global markets, continues to flourish in India, on the back of rising literacy rates, increased consumer 15

16 Spending and the growth of regional markets and specialty newspapers. Newspapers account for 42 per cent of all advertising spend in India the most of any medium. Investment India's Silicon Valley is gearing up to have a film city on the lines of Hollywood. This project is being built on the outskirts of Bengaluru by Nandi Infrastructure Corridor Enterprise (NICE). The Rs 1,000 crore (US$ million) film city will come up on a 300-acre plot and will have around 20 studios with facilities similar to Universal, MGM and Disney studios. The Cabinet Committee on Economic Affairs CCEA recently gave its nod to the proposal of Walt Disney Company (Southeast Asia) Pte Ltd, Singapore for increasing its shareholding from per cent to 100 per cent of UTV Software Communications Ltd. This approval is expected to result in FDI inflows amounting to Rs 8,250 crore (US$ 1.52 billion). Government Initiatives The Ministry of Information and Broadcasting (I&B) plans to push for financial incentives to ease the import of equipment, including set-top boxes, to assist in speeding up the process of converting India's cable TV distribution system from analogue to digital. The steps being considered include raising the foreign direct investment (FDI) limit for cable companies to 74 per cent from current 49 per cent and launching awareness campaigns on the merits of digital cable. 16

17 Road Ahead Backed by increasing media intake and increased advertising spending, the Media and entertainment industry in India is projected to grow at a compound annual growth rate (CAGR) of 14 per cent to touch Rs 1,27,500 crore (US$ 28 billion) by 2015, according to a report by KPMG and a leading industrial body. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 17

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