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Monday, July 23, 2012

ZEE ENTERTAINMENT ENTERPRISE LTD:A Business at inflection point !!!

Scrip Code: 505537 ZEEL
CMP:  Rs. 149.80; Buy at current levels .
Short term Target: Rs. 160; 
STOP LOSS – Rs. 137.81; Market Cap: Rs. 14,290.28 Cr; 52 Week High/Low: Rs. 152.00 / Rs. 105.55
Total Shares: 95,39,57,720 shares; Promoters : 41,84,72,440 shares –43.87 %; Total Public holding : 53,54,85,280 shares – 56.13 %; Book Value: Rs. 31.39; Face Value: Rs. 1.00; EPS: Rs. 6.44; Div: 150 % ; P/E: 23.25 times; Ind. P/E: 23.26; EV/EBITDA: 16.48
Total Debt: Rs. 1.90 Cr; Enterprise Value: Rs. 31,424.32 Cr.

ZEE ENTERTAINMENT ENTERPRISES LTD: Zee Entertainment Ltd was founded in the year 1982, based in Mumbai. Company was formerly known as Zee Telefilms Limited and changed its name to Zee Entertainment Enterprises Limited in January 2007. ZEEL, together with its subsidiaries, operates as a vertically integrated media and entertainment company in India. It operates in three segments: Broadcasting and Content, Education, and Film Production. The Broadcasting and Content segment develops, produces, and procures television programming and film content, and delivers through satellites, cable, and Internet. It broadcasts channels, such as Hindi general entertainment channels and regional language general entertainment channels, Bollywood channels, sports channels, English entertainment channels, alternate lifestyle channels. Company earns revenues by the way of advertisement and subscription revenues and syndication. The Education segment engages in distribution of software learning products; and provides education and training in information technology. The Film Production segment produces and distributes films. The company has a library housing approximately 1,00,000 hours from 80,000 hours of television content; and rights to approximately 3,000 movie titles. Effective March 29, 2010, Zee News Ltd. demerged its Regional General Entertainment Channel Business Undertaking and transferred its operation to Zee Entertainment Enterprises Limited It has operations in India, the United States, Canada, Europe, Africa, the Middle East, Southeast Asia, Australia, and New Zealand. ZEEL can be compared with Sun Tv Network Ltd, Network 18 Media & Investment Ltd and Television Broadcasts Limited.

Investment Rationale:
The management has not provided any guidance for growth in advertising revenues for the coming year, on account of poor industry environment. On subscription revenues, the company has guided for a low double digit growth on account of further gains from Mediapro. Content expenses of the company are likely to rise in the coming quarters, on higher costs of content and higher selling and distribution expenses on new channels and its marketing spending. The company had earlier guided for a loss of Rs. 65 Cr – Rs. 75 Cr in sports, and further investments of Rs. 50 Cr to Rs. 100 Cr on investments in new channels/ content. Zee Entertainment shall see a fairly strong growth in advertising revenues against the industry if the current trends in ratings are to be sustained. The company has launched new programs  in new formats, and so the company shall outperform media peers in advertising revenue growth in the coming year. ZEE’s JV named Mediapro has clearly created benefits for Zee Entertainment in excess of market expectation. And so the growth of 13 % in the domestic subscription revenues in FY13 along with the 10 % growth in expenses is factored in. And so, the result of these changes can been seen on PAT estimate & is believed that the company's improving competitive position, especially in the Hindi GEC space will have significant positive effect. The strong performance of Zee TV implies that Zee Entertainment revenues could move counter to the industry in the coming year, which is a significant positive.

Outlook and Valuation:
ZEE has launched a couple of new initiatives that include Ditto TV – it’s over the top platform, and channels Ten HD and Ten Golf. Till yet, the company's media initiatives have largely been in niches rather than mainline channels. The company has noted that the advertising revenues for the quarter were weaker in last year largely due to sports properties. The subscription revenues have shown a strong growth. On the above it is noted that the subscription revenues have been impacted positively by changing accounting methods for Mediapro which was from equity accounting to proportionate consolidation which added about Rs. 50.60 Crs to domestic subscription revenues for 9 months of this year, secondly, the same affected cost items- resulting in significant margin compression for the quarter, and lastly, the changes in treatment of forex items leaded to strong growth in items below EBITDA line, affecting PAT positively (relative to EBITDA). ZEE is investing in international businesses, which could accelerate overseas revenues over the long term. Even though the loss in sports division has often been considered a bane for ZEE, sports channels and HD will aid ARPU growth for ZEE over the longer term.  There is a huge under‐declared subscriber base of about 7.5 Cr (likely to come under its ambit post digitisation and MediaPro (a Joint Venture with Star) which will entail humungous potential for ZEE. Zee TV’s viewership rating is near its one‐year high, which makes ZEE well positioned for the fresh ad deals - ZEE TV has crossed the 250 Gross Rating Points (100 GRP means either that 100 % of targeted households are reached once per week or 1 % of them are reached 100 times in the week or any combination thereof, also called homes per rating points) mark after more than 1.5 years to strengthen its place as the No.2 behind Star Plus. This development has mainly come from a good performance of fiction shows. The full- year results are a better indicator of the performance of the company and so the company could show best performance at the PAT level as well as at the top-line. The subscription revenue growth & ad revenue growth which amounts to 20%-25% to its total revenues could be a key positive surprise on full year basis, and key negative for the year could be decline in selling, growth in other expenses. The Sports business losses has always been a headache for the company due to higher expenses on account of rupee depreciation, and partly on account of launches of new channels -Ten Golf and Ten HD. On the results, management has indicated that the company has, ex-sports, seen a positive growth in advertising revenues. ZEE reported 20.6 % rise in net profit for the quarter ended June 30,2012 at Rs. 157 Cr on back of strong advertising and subscription revenues. Advertising revenues for April - June rose 18 % to Rs. 447.2 Cr, while subscription revenue were at Rs. 364.2 Cr (Rs. 250.5 Cr from domestic & Rs. 113.7 Cr internationally) were up 19 % year on year. The company's consolidated operating revenue for June 2012 quarter also witnessed a 21 % increased at Rs. 843 Cr YoY while consolidated operating profit grew 50 % to Rs. 233.2 Cr. EBITDA & Net Profit margin stood at 27.7 % and 18.6 % respectively. During this quarter, ZEE TV averaged 215 GRPs recording a relatively share of 21.2 % among the top five hindi General Entertainment Channels & now No.2 GEC in terms of rating, also its market share in the prime time band improved significantly wherein ZEE TV averaged 122 GRPs recording a relative share of 23.1 %. At the current market price of Rs. 149.80, the stock is trading at 21.09 x FY13E and 14.98 x FY14E respectively. Earnings per share (EPS) of the company for FY13E and FY14E are seen at Rs. 7.10 and Rs. 10.00 respectively. With sturdy free cash flow generation of about Rs.1,000 Cr with minimal debt, it is expected that the company will keep its secular growth story intact with stable dividend policy will make ZEE the best stock to own in defensive space. One could BUY ZEE ENTERTAINMENT ENTERPRISES LTD with a target price of Rs. 200 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 160.00 

SALES (Rs. Crs) 3,008.80 3,040.50 3,276.60 3,656.90
NET PROFIT (Rs. Crs) 605.50 590.60 632.90 751.60
EPS (Rs.) 6.30 6.10 7.10 10.00
PE (x) 21.50 23.50 22.00 18.60
P/BV (x) 3.90 3.60 3.10 2.90
EV/EBITDA (x) 14.80 17.20 14.40 11.60
ROE (%) 17.50 18.10 17.30 18.10
ROCE (%) 18.10 18.40 17.20 17.50

I would buy ZEE ENTERTAINMENT ENTERPRISE LTD with a price target of Rs. 160 for the short term and Rs. 200 for the medium to long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 137.81 on every purchase. 


Friday, July 13, 2012


Scrip Code: 533200 TALWALKARS
CMP:  Rs. 173.20; Buy at Rs.166 - Rs.170 levels.
Short term Target: Rs. 190; Long term Target Rs.250; 
STOP LOSS – Rs. 158.00; Market Cap: Rs. 417.68 Cr; 52 Week High/Low: Rs. 265.00 / Rs. 107.00
Total Shares: 2,41,15,672 shares; Promoters : 1,43,45,723 shares –59.49 %; Total Public holding : 97,69,949 shares – 40.51 %; Book Value: Rs. 59.70; Face Value: Rs. 10.00; EPS: Rs. 7.96; Div: 10.00 % ; P/E: 21.75 times; Ind. P/E: 17.77; EV/EBITDA: 15.79
Total Debt: Rs. 111.38 Cr; Enterprise Value: Rs. 529.06 Cr.

TALWALKARS BETTER VALUE FITNESS LTD: The Company was founded in 1932 and is based in Mumbai, India.  Talwalkars Better Value Fitness Limited (TBVF) was formerly known as Talwalkars Better Value Fitness Private Limited. The company operates a fitness chain in India. The company offers a suite of services, including gyms, spas, aerobics, nutrition counseling, physiotherapy guidance, yoga classes and health counseling under the ‘Talwalkars’ brand.  The Company has an 8,000 square feet residential training academy at Thane. The training academy offers about 4 to 6 weeks of training program for its staff joining at the new centers.  As of May o4 2012, it had 102 health clubs and 62 cities and had more than 75,000 members. Its health clubs/training centers are located in Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal. In April 2012, through its subsidiary Talwalkars opened a health club in the of Gandhinagar.

Investment Rationale:
The management stated that they have put hold on the plans to roll out clubs which was a different format compared to gym which required much larger investments and a longer gestation periods which would have had a dilutive effect on return ratios (RoE, RoCE) in the near term so the plans has been put on a hold. It would continue to focus on gym expansion where it remains bullish on the opportunity in the market given the low penetration rates for organized players. 
TBVF has rolled out 19 gyms in 9M FY12 and it is slated to launch another 16 gyms in Q4, a traditionally strong quarter for the fitness business. This would take its total gym base to 126 of which about 90 would be owned and rest would be through a combination of subsidiaries, franchisees/JVs and HiFi gyms. Company plans to add 8 HiFi gyms in the current year through franchisee route which would not entail any capex for the company. In order to accelerate roll out in Tier II & Tier III cities, Talwalkars has conceptualized gyms under the ‘HiFi’ brands. These would be rolled out in areas with population of 3,00,000 – 5,00,000 which otherwise may not have supported a fully fledged Talwalkars gym. For instance, company has targeted HiFi gyms roll out in cities like Porbander, Faridabad and Solapur. These are typically ‘no frills’ gyms with area of 2,500 - 2,800 sq ft & about half of that is for a regular gym. HiFi gyms capex requirement is about half of a full service gym and their membership rates are also 60 % more of those of regular gyms. The company would roll out HiFi gyms through the franchisee route thereby eliminating funding needs for the roll out. In return for gym management, TBVF will earn royalty income at the rate of 6 % of revenues for first three years and 8 % thereafter. Talwalkars would also receive a one-time royalty income and equipment supply charge to the tune of Rs.10,00,000 each. HiFi gyms offers faster roll out since each roll out usually takes 8-10 weeks as compared to 14-16 weeks for typical Talwalkars gym and so HiFi gyms is the better road for Talwalkars to go ahead.

Outlook and Valuation:
Gym is a highly localized business in the sense it needs to be easily accessible to local population at an affordable price (at least from a mass market perspective). Talwalkars has managed to break away from its peers and now leads the scale with 109 gyms on consolidated basis. There is a vast opportunity exists for further scale building considering the fragmented nature of industry. For instance, market share of the top 5 players by number of clubs is just 16 % as compared to global top 5 average which is about 40 %. Talwalkars has a decent spread-out across the North, West and South regions which together accounts for 94 % of the total gyms. It is also targeting different price segments with roll out of both Regular as well as ‘Low Cost’ HiFi gyms especially in those tier II/III cities which may not support a full service Talwalkars’ gym. Membership growth too has kept pace with volume additions as seen from a 31 % membership CAGR over FY07-12 as compared to 29 % CAGR in gym base. Talwalkars is likely to incur about Rs. 1.8 Cr in capex per gym roll out while it would have shouldered about half the needs in case of a subsidiary. Since HiFi gym expansion would be largely through franchisee route, Talwalkars would not have to incur the capex for these gyms. Talwalkars is expected to add about 96 gyms in FY13-14 with 77 % of the gyms added under owned and HiFi brands. Accordingly, it is expected that the Capex/Sales ratio to decline to 21 % in FY13 from 45 % in current fiscal. On the pricing front, company intends to hike membership fees by 8 % for new gyms (<1 year of ops) from April’ 12. Given the largely fixed nature of costs it is expected that the operating leverage benefits to kick in over FY13/14, factoring in OPM of 44.9 % /45.2 %. Given that roll outs in next 2 years would be more through subsidiaries and HiFi franchisees (63 % share of incremental gym adds), it is expected that the capex intensity to decline to 21 % in FY14 from 45 % in current fiscal. This would help generate free cash flow in FY14. TBFV is a play on the growing healthcare market in India. It has a strong brand name and is now capitalizing, with rapid expansion. There are not any listed comparable players and thus its closest comparable peers are the consumption companies like Jubilant Food works, Page Industries, Titan Industries etc which trades at an average PE of 30 x FY13. At the current market price of Rs. 173.20, the stock is trading at 15.46 x FY13E and 11.47 x FY14E respectively. Earnings per share (EPS) of the company for FY13E and FY14E are seen at Rs. 11.20 and Rs. 15.10 respectively. It is expected that the company will keep its growth story intact in the coming quarters also. One could BUY TALWALKARS BETTER VALUE FITNESS LTD with a target price of Rs. 190.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 250.00 

SALES (Rs. Crs) 92.80 117.20 160.50 202.20
NET PROFIT (Rs. Crs) 16.00 20.50 26.90 36.50
EPS (Rs.) 6.70 8.50 11.20 15.10
PE (x) 23.50 18.40 14.00 10.30
P/BV (x) 3.00 2.26 2.20 1.90
EV/EBITDA (x) 11.70 9.30 7.00 5.50
ROE (%) 19.10 15.20 17.30 19.80
ROCE (%) 16.40 15.00 18.00 18.70

I would buy TALWALKARS BETTER VALUE FITNESS LTD with a price target of Rs. 190 for the short term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 158.00 on every purchase.


Tuesday, July 3, 2012

SANGHVI MOVERS LTD: A Hidden Gem, Accumulate at every Dip !!!

Scrip Code: 530073 SANGHVIMOV
CMP:  Rs. 104.70; Buy at current levels. Short term Target: Rs. 110, 6 month Target – Rs. 150; STOP LOSS – Rs. 90; Market Cap: Rs. 453.22 Cr; 52 Week High/Low: Rs. 135. / Rs. 83.50
Total Shares: 4,32,88,000 shares; Promoters : 1,96,74,951 shares –45.45 %; Total Public holding : 2,36,13,049 shares – 54.55 %; Book Value: Rs. 124.94; Face Value: Rs. 2.00; EPS: Rs. 23.51; Div: 150 % ; P/E: 4.45 times; Ind. P/E: 9.19; EV/EBITDA: 4.07.
Total Debt: Rs. 639.25 Cr; Enterprise Value: Rs. 1085.45 Cr.

SANGHVI MOVERS LTD: The Company was founded in 1985 and is based in Pune, India. Sanghvi Movers Limited operates as a crane services company, Equipment rental & leasing sector in India and other parts of Asia. It provides heavy lift, plant erection, and maintenance services for various large scale projects. The company also offers over dimensional, heavy, and bulk cargo transportation services. It operates a fleet of 398 medium to large size hydraulic truck mounted telescopic and lattice boom cranes, and crawler cranes with lifting capacity ranging from 20 MT to 800 MT; and 132 hydraulic multi axle modular trailers. In addition, the company also engages in the generation of power from windmills. It primarily serves power, cement, steel, refinery, metros, windmill, and metal sectors. The Company operates in two business segments: Operations of Cranes and Power Generation. It earns regular revenue from the business of power generation from windmills commissioned in Jaisalmer, Rajasthan and Chitradurga, Karnataka. The Company's clients include Suzlon, Aditya Birla Group, TOYO, BHEL, Reliance, Vedanta Group, Siemens, Tata Steel, and Enron power, Samsung, Gujarat Ambuja and TISCO.

Investment Rationale: Sanghvi Movers Ltd is the 3rd largest crane services company in India, and ranked 7th largest in the world by Cranes International in June 2011 issue. Sanghvi Movers Ltd is undertaking an implementation of the turnkey projects, which includes providing of the well maintained equipment's,experts technical services and skilled manpower. The company carters to 75 % of the traditional Power sector crane requirement and 65 % of the Windmill sector’s crane requirement. The company has Crawler and truck mounted cranes and also has Hydraulic Multi Axle Modular Trailer. The company claims to have 98 % guaranteed machine availability with a timely deployment. The company has its owned state of the art Sanghvi Training Academy which provides high skills crane training programmes and produces highly skilled crane operators. Sanghvi Movers has 12 depots across the country to ensure timely deployment of cranes. The Indian logistics industry accounts for a mere 2 % ($100 billion) of the $5000 billion global logistics industry despite having the second largest network of roads at 3.83 million km, the fourth largest rail network of 63000 km, 128 airports, 12 major ports, 1 trans-shipment port and 187 non major ports. Indian Logistics sector grew by 8 to 10 percent annually over the last decade. There are several factors which have favorably impacted the growth of the logistics industry, like the country’s tax regime, growth across major industry segments such as automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence of organized retail. Exim trade volume of India is growing consistently from last decade hence India is set to increase its share in global trade from less than 1 % now to about 1.6 % in 2012. India’s level of containerization is less than 25 % as against global average of 60 % - 70 %. An average time taken to clear import and export cargo at ports is about 19 days in India as against 3-4 days in Singapore. The trend towards containerization picked up in India in the last decade. Container traffic has seen a growth of 12 % CAGR in India from 2.5 million TEU in 2000-01 to 7.5 million TEU in 2010-11, seeing this and due to competitive advantage Sanghvi Movers is best fitted to tap in the growing trend of containerization. 

Outlook and Valuation:
Sanghvi Movers nearly has a monopolistic position in the high tonnage crane rental market in India. The Company is a great proxy to play the improving Indian infrastructure industry. The company is led by C.Sanghvi and his professional team, company has been able to maintain its competitive advantages in this sector. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry - by Warren Buffett)Especially in businesses, logistics is responsible for all the movement that takes place within the organization whether it is inbound logistics of incoming, raw materials or movement within the company or the physical distribution of finished goods and logistics encompasses all of these. A typical logistics framework mainly consists of physical supply, internal operations and physical distribution of goods and services. To put it more simple manner, the material supply logistics starts from the base level of “generation of the demand”, through the “process of purchase” and “supply of material from the vendor” right through to “final acceptance” and “payments to the supplier” and “issue to the indenter” and has to be considered as a “one whole activity” with each stage having an impact on price/cost of material supply. Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of material and personnel within the logistics channel and as said before the Indian logistics industry accounts for a mere 2 % ($100 billion) of the $5000 billion global logistics industry and the trade volume of India is growing consistently from last decade & hence India is all set to increase its share in global trade from less than 1 % now to about 1.6 % in 2012, and Sanghvi Movers is well equipped for that. The company will also be benefited from the boost by the Prime minster of India on infrastructure development plans – Sanghvi Movers is a silent play to the infrastructure sector. During the quarter ended, the Net profit of the company increased to Rs.24.66 Crs and registering a growth of 13.53 %. Net Sales and PAT of the company are expected to grow at a CAGR of 16 % by 2014E. At the current market price of Rs.104.70, the stock is trading at PE of about 3.92 x FY13E and 3.54 x FY14E respectively. Company can post Earnings per share (EPS) of about Rs. 26.69 for FY13E and Rs. 29.54 for FY14E respectively. On the basis of EV/EBITDA, the stock trades at 1.17 x for FY13E and 1.05 x for FY14E respectively. It is expected that the company will keep its growth story intact in the coming quarters with the help of its competitive advantage. One can ‘BUY’ SANGHVI MOVERS at every given opportunity with a target of Rs.117.00 for Medium to Long term investment.

SALES (Rs. Crs) 361.25 450.47 509.03 565.03
NET PROFIT (Rs. Crs) 86.31 101.77 115.52 127.90
EPS (Rs.) 19.94 23.51 26.69 29.54
PE (x) 5.12 4.34 3.83 3.46
P/BV (x) 0.80 0.70 0.59 0.51
EV/EBITDA (x) 1.65 1.31 1.17 1.05
ROE (%) 15.53 16.22 15.55 14.69
ROCE (%) 30.20 34.53 34.84 34.55

I would buy Sanghvi Movies Ltd with a price target of Rs. 117 for Medium to Long term. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 90.00 on every purchases.

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