1 Edelweiss Securities Limited CONTENTS Latest Research • 'BRAVEHEART SERIES': Zee Entertainment Enterprises - All set to ride the digital highway • EdelFlash: HUL - Leading the innovation game • Construction - Dedicated Freight Corridor: Tracking growth • Rollover Analysis • Bond Vector - Gilts trade cautiously with an eye on OMO Regular Features • Sales Trader’s Commentary • Insider Trades & Bulk Deals • Technical Updates • Eye Catchers FIRST CALL DAILY India Equity Research June 27, 2012 India Change in % 26-Jun-12 1- d 1- m o 3-mo Nifty 5,121 0.1 4.1 (2.3) Sensex 16,907 0.1 4.2 (2.0) CNX 500 4,053 0.2 3.6 (2.8) Global Indices 26-Jun-12 1- d 1- m o 3-mo DJIA 12,535 0.3 0.6 (5.0) NASDAQ 2,854 0.6 0.6 (8.5) Hang Seng 19,050 0.4 1.8 (9.5) Nikkei 225 8,656 (0.1) 0.9 (15.6) Net Inv (INR Bn) 22-Jun-12 Buy Sell Net FII Cash 14.0 12.1 1.9 FII F&O 274.7 259.3 15.4 MF Cash 3.0 4.5 (1.5) Value Traded - India (INR Bn) Change in % 26-Jun-12 1- d 1- m o 3-mo BSE Cash 15.6 (18.5) (12.9) (58.9) NSE Cash 76.2 (12.7) (6.2) (28.8) NSE F&O 1,572.3 (30.5) Forex/M oney M arket Change in % 26-Jun-12 1- d 1- m o 3-mo INR/USD 57.0 (0.0) (3.2) (10.1) USD/EUR 1.2 0.1 (0.3) (6.1) USD/YEN 0.0 (0.2) (0.1) (4.5) 10 Yr G-Sec 8.3 (0.4) (2.5) (1.4) Commodities (USD/Mt ton) Change in % 26-Jun-12 1- d 1- m o 3-mo Copper 8,382 0.4 (3.9) (14.0) Aluminium 2,702 (1.1) (8.6) (15.8) *Go ld 1,573.5 0.0 0.0 (6.4) *Silver 27.1 0.1 (4.9) (16.8) **NYM EX 79 0.4 (12.5) (25.9) *USD/Troy Ounce **USD/bbl Agri Commodities (INR/QT) Change in % 26-Jun-12 1- d 1- m o 3-mo Sugar 3,163.0 (0.0) 1.7 4.5 ^INR/M aund ^^INR/KG Sectoral Movements % Change Ticker 26-Jun-12 1 D 1 M 3 M 1 Y Banking 11,502 0.5 5.5 (1.5) (8.7) IT 5,989 (0.1) 1.8 (8.0) (8.3) Pharmaceuticals 6,724 0.7 1.3 4.5 6.7 Oil 7,976 1.2 5.3 0.4 (13.0) Power 1,893 0.9 6.0 (9.0) (26.2) Auto 9,320 0.4 0.9 (5.9) 7.3 Metals 10,250 (0.2) 1.6 (7.8) (30.3) Real Estate 1,625 0.4 3.4 (7.3) (18.3) FMCG 4,825 (0.9) 5.1 8.2 24.8 Capital Goods 9,677 (0.1) 9.2 (3.4) (28.8) Open Interest (INR mn) Volume 26-Jun-12 25-Jun-12 % Change Futures 484,841 466,438 3.9 Call 399,105 392,041 1.8 Put 554,978 531,351 4.4 Total 1,438,925 1,389,830 3.5 Put Call Ratios Volume 26-Jun-12 25-Jun-12 % Change PCR 0.97 1.04 (7.2) WPCR 0.89 0.75 18.7 OI PCR 1.38 1.35 2.6 Total OI/ Volum 0.92 0.79 15.3 Nifty IVs at 18 - 21% levels. FII Activity* (INR M n) (25-Jun)
27
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First Call June 27, 2012-EDEL - Myirisbreport.myiris.com/ES1/ZEETELEF_20120626.pdf · Bhel has received an order worth INR 9.5bn for a 1020MW hydroelectric project in Bhutan (DNA)
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1 Edelweiss Securities Limited
CONTENTS
Latest Research
• 'BRAVEHEART SERIES': Zee Entertainment Enterprises - All set to ride the
digital highway
• EdelFlash: HUL - Leading the innovation game
• Construction - Dedicated Freight Corridor: Tracking growth
• Rollover Analysis
• Bond Vector - Gilts trade cautiously with an eye on OMO
Regular Features
• Sales Trader’s Commentary
• Insider Trades & Bulk Deals
• Technical Updates
• Eye Catchers
FIRST CALL
DAILY
India Equity Research
June 27, 2012
India Change in %
26-Jun-12 1-d 1-mo 3-mo
Nifty 5,121 0.1 4.1 (2.3)
Sensex 16,907 0.1 4.2 (2.0)
CNX 500 4,053 0.2 3.6 (2.8)
Global Indices
26-Jun-12 1-d 1-mo 3-mo
DJIA 12,535 0.3 0.6 (5.0)
NASDAQ 2,854 0.6 0.6 (8.5)
Hang Seng 19,050 0.4 1.8 (9.5)
Nikkei 225 8,656 (0.1) 0.9 (15.6)
Net Inv (INR Bn)
22-Jun-12 B uy Sell N et
FII Cash 14.0 12.1 1.9
FII F&O 274.7 259.3 15.4
M F Cash 3.0 4.5 (1.5)
Value Traded - India (INR Bn) Change in %
26-Jun-12 1-d 1-mo 3-mo
BSE Cash 15.6 (18.5) (12.9) (58.9)
NSE Cash 76.2 (12.7) (6.2) (28.8)
NSE F&O 1,572.3 (30.5)
Forex/M oney M arket Change in %
26-Jun-12 1-d 1-mo 3-mo
INR/USD 57.0 (0.0) (3.2) (10.1)
USD/EUR 1.2 0.1 (0.3) (6.1)
USD/YEN 0.0 (0.2) (0.1) (4.5)
10 Yr G-Sec 8.3 (0.4) (2.5) (1.4)
Commodities (USD/M t ton) Change in %
26-Jun-12 1-d 1-mo 3-mo
Copper 8,382 0.4 (3.9) (14.0)
A luminium 2,702 (1.1) (8.6) (15.8)
*Go ld 1,573.5 0.0 0.0 (6.4)
*Silver 27.1 0.1 (4.9) (16.8)
**NYM EX 79 0.4 (12.5) (25.9)
*USD/Troy Ounce **USD/bbl
Agri Commodities (INR/QT) Change in %
26-Jun-12 1-d 1-mo 3-mo
Sugar 3,163.0 (0.0) 1.7 4.5
^INR/M aund ^^INR/KGSectoral Movements % Change
Ticker 26-Jun-12 1 D 1 M 3 M 1 Y
Banking 11,502 0.5 5.5 (1.5) (8.7)
IT 5,989 (0.1) 1.8 (8.0) (8.3)
Pharmaceuticals 6,724 0.7 1.3 4.5 6.7
Oil 7,976 1.2 5.3 0.4 (13.0)
Power 1,893 0.9 6.0 (9.0) (26.2)
Auto 9,320 0.4 0.9 (5.9) 7.3
Metals 10,250 (0.2) 1.6 (7.8) (30.3)
Real Estate 1,625 0.4 3.4 (7.3) (18.3)
FMCG 4,825 (0.9) 5.1 8.2 24.8
Capital Goods 9,677 (0.1) 9.2 (3.4) (28.8)
Open Interest ( IN R mn)
Vo lume 26-Jun-12 25-Jun-12% C hange
Futures 484,841 466,438 3.9
Call 399,105 392,041 1.8
Put 554,978 531,351 4.4
Total 1,438,925 1,389,830 3.5
P ut C all R at io s
Vo lume 26-Jun-12 25-Jun-12% C hange
PCR 0.97 1.04 (7.2)
WPCR 0.89 0.75 18.7
OI PCR 1.38 1.35 2.6
Total OI/ Volume 0.92 0.79 15.3
Nifty IVs at 18 - 21% levels.
FII Activity* (INR M n) (25-Jun)
2 Edelweiss Securities Limited
First Call
STOCKS IN NEWS
Aditya Birla, Jaypee deal likely in 10-15 days (ET)
Bhushan, Monnet revive bids for 20% stake in Orissa Sponge (ET)
Lessors take back 32 Kingfisher aircraft for non – payment (ET)
DoT seeks attorney general’s view on pricing of existing 2G spectrum (ET)
Bhel has received an order worth INR 9.5bn for a 1020MW hydroelectric project in Bhutan
(DNA)
RPower’s Butibori plant start generation (BS)
3 Edelweiss Securities Limited
First Call
SALES TRADERS COMMENTARY
On Tuesday, the Indian equity market closed marginally positive in an extremely volatile
session. Sensex and Nifty gained 0.10% each. Buying was seen in oil&gas, power, PSU and
auto stocks, while consumer durables, FMCG, metal and capital goods stocks faced selling
pressure.
While the Sensex closed at 16906, up 25 points, the Nifty jumped 06 points to end the day
at 5120.
Major gainers were G A I L (India) (2.74%), H D F C Bank (1.78%), Tata Power Company
(1.70%), Oil & Natural Gas Corporation (1.52%), Tata Consultancy Services (1.40%), and
Mahindra & Mahindra (1.36%).
Major losers were Hindustan Unilever (2.02%), Sterlite Industries (India) (1.21%), Infosys
Technologies (1.05%), Tata Steel (1.00%), Bharti Airtel (0.78%), and I T C (0.62%).
The Oil & Gas index jumped 1.20%. Major gainers were Gujarat State Petronet (3.24%), G A I
L (India) (2.74%), Hindustan Petroleum Corporation (2.36%), Oil India (1.5%) and Bharat
Petroleum Corporation (0.37%).
The Power index was up 0.89%. Major gainers were NTPC (0.89%), Reliance Infrastructure
(0.87%), Lanco Infratech (0.8%), Bharat Heavy Electricals (0.8%) and NHPC (0.28%).
The PSU index gained 0.70%. Major gainers were Allahabad Bank (1.51%), Andhra Bank
(1.22%), Bank of Baroda (1.22%), Bank of India (0.6%) and Balmer Lawrie & Company
(0.15%).
The Consumer Durables index was down 0.98%. Major losers were C.Mahendra Exports
(1.41%), Rajesh Exports (1.07%), Blue Star (0.88%), Whirlpool of India (0.84%) and Gitanjali
Gems (0.37%).
Globally, Asian indices ended on a mixed note while European indices were trading in the
green.
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Sturdy free cash flow generation, ~INR10bn net cash, minimal debt, secular growth story, two buy‐back offers in past few quarters and a stable dividend policy earn ZEE Entertainment (ZEE) an unequivocal place among the best stocks to own in the defensive space. Irrespective of the winner amongst DTH or cable operators, it will be one of the safest and most attractive stocks to play the digitisation theme. With 600bps surge likely in ROE post digitisation, we expect ZEE to re‐rate. Our analysis indicates an NPV/share of ~INR73 from mandatory digitisation in spite of considering delays, even though most of the stakeholders are serious on digitisation this time around. Despite conservative estimates, we expect ~80% upside over a two‐year timeframe (TP: INR244). Maintain ‘BUY’. Humungous untapped potential A huge under‐declared subscriber base of ~75mn (likely to come under its ambit post digitisation) and MediaPro (JV with Star) entail humungous potential for ZEE. Zee TV’s viewership rating is near its one‐year high, which bodes well for fresh ad deals.
Overseas investments, sports, HD could reap rich dividends ZEE is investing in international businesses, which could accelerate overseas revenues over the long term. Even though loss in sports division has often been considered a bane for ZEE, sports channels and HD will aid ARPU growth for ZEE over longer term.
Most negatives already factored in Current valuations already factor in the key risks/concerns like (a) delay in digitisation; (b) loss of viewership ratings; (c) sports losses.
Outlook and valuations: Future beaming; maintain ‘BUY’ ZEE is one of our top picks in the media and we have a TP of INR166 from one year perspective. At CMP of INR136, the stock is trading at P/E of 19.4x and 16.5x FY13E and FY14E earnings, respectively. We maintain ‘BUY/Sector Outperformer’.
ZEE ENTERTAINMENT ENTERPRISES All set to ride the digital highway
EDELWEISS 4D RATINGS
Absolute Rating BUY
Rating Relative to Sector Outperformer
Risk Rating Relative to Sector Medium
Sector Relative to Market Equalweight
MARKET DATA (R: ZEE.BO, B: Z IN)
CMP : INR 136
Target Price (1‐year) : INR 166
52‐week range (INR) : 145 / 109
Share in issue (mn) : 958.8
M cap (INR bn/USD mn) : 130 / 2,303
Avg. Daily Vol.BSE/NSE(‘000) : 1,688.8
SHARE HOLDING PATTERN (%)
* Promoters pledged shares (% of share in issue)
: 15.1
PRICE PERFORMANCE (%)
Stock Nifty EW Media
Index
1 month 8.9 3.5 (0.5)
3 months 6.7 (4.8) (5.6)
12 months 1.1 (5.6) (29.3)
Abneesh Roy +91 22 6620 3141 [email protected] Click on image to view video
One of the best defensives: Sturdy free cash flow, net cash of ~INR10bn, minimal debt, secular growth story, two buy‐back offers
Digitisation to spur subscription revenues: Huge under‐declared subscriber base of ~75mnDigitisation to spur subscription revenues: Huge under declared subscriber base of 75mn is a big opportunity. NPV/share of ~INR73 from digitisation in spite of considering delays
MediaPro traction visible: MediaPro will increase bargaining power of ZEE aiding subscription revenue as has been visible in Q3FY12 and Q4FY12subscription revenue, as has been visible in Q3FY12 and Q4FY12.
Reduced dependency on ad revenues: Subscription revenues will increase to 56% in FY16 from current ~44% of ZEE’s total revenues
Most negatives discounted: Slowdown in ad revenue growth, delay in digitisation and sports losses are discounted in the current price
Likely to re‐rate: Limited scope for new entrants (two of the three new Hindi GEC entrants have shut shop) and 600bps surge likely in ROE post digitisation
Two‐year target price of INR244; One‐year target price of INR166
2
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Hindustan Unilever (HUL), in a bid to cement its position in the water purifier business, has launched Pureit sachets. Recently, HUL also initiated several other innovations in products and packaging. We perceive the new positioning of Axe as the mother brand for all its male grooming products as a master stroke, as this segment is on a sharp uptrend. We expect HUL (largest soap player) to benefit from the correction in palm oil prices in coming quarters (however, rupee depreciation will limit gains) and softness in stance of major competitor, P&G. The key risk is delayed monsoon, which may impact rural demand. Vindicating our report, Go Contra; turnaround signals getting louder, dated May 26, 2010, the stock has since outperformed Nifty ~94% and crossed the INR1‐tn market cap mark. Reiterate ‘BUY’. One step ahead of competitors in water purifier segment With the bottled water market in India growing at 19%, HUL is well placed participate in demand for water purifiers. Bringing in fresh momentum to the INR35bn purifier market, HUL has launched low‐cost chlorine‐based Pureit sachets (being test marketed in Bhopal). The product is to be dipped in water and left for a while before use to achieve purity comparable to boiled water. This mass market offering will take Puriet across price points and categories and potentially be a game changer as sachets work well in the bottom of pyramid segment (~70% shampoo sales through sachets).
Upping ante on innovation, cost rationalisation HUL recently launched Magic, an after‐wash laundry brand, which reduces water usage by two‐thirds (being test marketed in Andhra Pradesh). Its innovative packaging for Pond’s Talcum Powder also led to cost and waste reduction (won Silver Award at the 24th DuPont Global Packaging Award).
Outlook and valuations: Positive; maintain ‘BUY’ At CMP, the stock is trading at 32.0x and 27.2x FY13E and FY14E, respectively. We reiterate ‘BUY’ on the stock and rate it ‘Sector Outperformer’ on relative return basis.
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