Tuesday 5 February 2008

Multibagger - UTV Software

CMP: Rs 888.45, 12 month Target : Rs 2000

Company Profile:

UTV Software is a Mumbai based media company with a growing presence across segments. Starting with a focus on film production and distribution, UTV has branched out in a big way into Television Content, Broadcasting, Gaming and Animations. It is this growing presence across the value chain in one of the best segments of the media space, that has attracted the likes of Walt Disney to invest into this company and excites a bargain seeking investor.

Film Production and Distribution:

UTV is becoming a very prominent banner in the whole film entertainment value chain with operations in film production , domestic and international distribution, home videos and the recent addition of music labels through UTV Music. During the last quarter it managed these initiates well with movies like Welcome, Taare Zameen Par and Goal raking in good earnings. In the coming few months UTV has another 8 block busters lined up with renowned film makers. Globally, UTV Motion Pictures distributes its products in 32 countries. UTV has already organized funding of $ 80 million and proposes to deploy capital to the tune of Rs 750 crores in this segment.

Broadcasting:

UTV’s much publicized foray into Broadcasting appears to be on track. Its Youth Entertainment Channel ‘bindass’ is getting higher TRPs as compared to its peers. UTV has lined up a few more channel launches including World Movie Channel, Hindi Movie Channel and Business News Channel and is expecting to announce a partner for this segment.

Interactive Gaming:

Interactive Gaming is one of the fastest growing markets globally and UTV has an early mover advantage in India. It has acquired India Games for Mobile and Online Gaming and UK-based Ignition for the Console Gaming. It is developing platforms for all the top players like SONY, X BOX 360 etc.

Financial Position:

For the 3rd quarter for the Financial Year 2008 (ending December 31, 2007), UTV Software reported a stellar set of numbers with the consolidated revenues growing up by 183% at Rs 123.2 crores and the net profit by a whopping 1055% from Rs 1.9 crores (after excluding an other income component of Rs 268.6 crores) up to Rs 23 crores in the current quarter. This is excellent growth by any standards and we expect this momentum to continue in the next few years. For the year as whole, we expect UTV to end at a net profit of Rs 60 crores on consolidated basis and EPS of close to Rs 25. We expect the sales and profits to double in the next 2 years.

Investment Positives:

  • High growth player across the Media space.
  • Strong track record with proven success.
  • Valuable Partnership with Global Media leaders like Walt Disney.
  • Fairly competitively valued when compared to the growth trajectory.
  • In the recent crash, UTV has shown relative strength and held its own while other mid-caps fell considerably.

Concerns:

  • Inherent risks associated with failures in the movie business.
  • The share price has already gone up considerably last one year, thereby factoring some of the good news into the price.

Valuation and Recommendation:

UTV is an excellent exposure in the Indian Media space with its tentacles across the sector. The Management has proved its mettle and its growth plans are well thought out. We recommend this stock for all types of investors with a target price of Rs. 2000/- by December 31, 2008.

P N Vijay

(The author has shares of the above in the Proprietary accounts and in the Portfolios managed by his Company).