Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

UTV Software : Multibagger Recommendations : Long Term Stock

3 min read

Buy : UTV Software
CMP : Rs775
Target : Rs 1400
Upside : More than 90%
Time Frame : 1 Year
Breakout : Right Now the stock is under consolidation.Expect a rally after consolidation
Breakout is expected above 805. Till then it is a buy
UTV Software, which has firmly established itself in the movie production business, is inching faster towards its ambition of becoming a global integrated media player with a presence spanning television content, broadcasting, films, gaming and animation. With The Walt Disney Company (Disney) more than doubling its stake in the company to 32 per cent, the company is well-funded for its aggressive foray into broadcasting and can further build on its other ventures.

But with a substantial equity expansion post the issue of shares to Disney and the promoters, the stock price is likely to remain subdued. At the current market price of Rs 817, the stock trades at expensive valuations of about 35 times its consolidated FY 09 per share earnings, on a fully expanded equity base. Presence in highly scalable segments, a business model focused on the global market, an ability to strike the right partnerships and an improving track record in execution are among the factors that support rich valuations.

With a strong pipeline of movie releases in 2008, movie production will continue to be a key driver of revenue and earnings growth in FY 09. However, the company is yet to consolidate the financials of its broadcasting business, which is just getting off the ground. A higher than anticipated loss in the broadcasting business is a risk to earnings estimates. In the near-term, the open offer at Rs 860 offers some support to the stock. Shareholders can hold on to the stock for now. Long-term investors may, however, be better off using steep declines linked to broad market weakness to accumulate the stock.

3 Month and 1Year Charts


Disney hikes stake

Mr Ronnie Screwvala, Chairman and MD.

With an investment of Rs 805 crore, Disney has increased its stake in UTV to 32.1 per cent from about 14 per cent earlier. The promoters will be issued warrants to consolidate their stake at 32.1 per cent as well. Disney’s stake increase has triggered an open offer at Rs 860 for an additional 20 per cent. However, an agreement with the promoters ensures that Disney’s effective stake in the company is limited to 32.1 per cent over the next four years. The promoters have an option to buy out any additional shares that Disney may mobilise through the open offer. Disney’s voting rights too will be limited to 32.1 per cent. Management control continues to rest with the promoters of UTV.

Disney has also invested an additional Rs 119 crore for a 15 per cent stake in UTV Global Broadcasting, valuing the business at close to Rs 800 crore. UTV will have a 75 per cent stake in the business, while the remaining 10 per cent is to be owned by its promoter, Mr Ronnie Screwvala.

For Disney, access to the Indian film and television market is the clear incentive. For UTV, the synergies are considerable. Besides a strong financial partner in Disney, UTV will also be able to leverage Disney’s knowledge in film marketing and distribution. It might also be able to use Disney’s international distribution network for distribution of its home productions. According to the Walt Disney Fact Book, Walt Disney generated $15 billion from its studio business in fiscal 2007, when it distributed 911 full-length live action features and 79 animated feature films under the banner of Walt Disney Pictures, Pixar, Touchstone Pictures and Miramax, to name a few.

Movie pipeline

UTV’s own motion pictures business (UMP) happens to be its most mature vertical. The AIM-listed UMP is a 77 per cent subsidiary of UTV Software. The company has met with early success in its studio model of film production and has successfully tied up with leading Hollywood names. One of the most anticipated movies of the year will be its co-production with Twentieth Century Fox of M Night Shyamalan’s The Happening.

UMP just released a Hindi epic Jodhaa Akbar which has done reasonably well at the box office. With a pipeline of 11 movies this year, the movie business is likely to be the strongest driver of growth in the medium term. UMP accounted for over 50 per cent of the consolidated revenues in the first nine months of FY 08 and enjoyed a margin of 37 per cent.

The company has ensured profitability in this unpredictable business by hedging its risks. This it does by creating a portfolio of diverse movies across languages, striking the right distribution deals and getting its revenues from multiple distribution platforms. For instance, it recovered its production costs by pre-selling its rights for the movie Goal, which had an average performance at the box office. On the other hand, in the case of Jodhaa Akbar, which had a huge production and marketing budget, it has taken on the distribution itself so as to maximise returns. It has also been fairly aggressive on the distribution front and bagged the international distribution rights of Taare Zameen Par. In the last couple of years, UTV has demonstrated a knack of backing the right kind of movies, which inspires confidence.
UTV Software – Outcome of EGM – 3/24/2008
UTV Software Communications Ltd has informed that the members at the Extra Ordinary General Meeting (EGM) of the Company held on March 17, 2008, inter alia, have passed the following resolutions:

1. Approved the increase in Authorised share capital from Rs 36 Crores to Rs 45 Crores and its consequential amendment to the Memorandum and Articles of Association of the Company.

2. Approved the issue of issue of 93,52,500 equity shares to The Walt Disney Company (Southeast Asia) Pte Ltd at a price of Rs 860.79 per share and the subscription by Unilazer Exports and Management Consultants Ltd of 45,32,000 equity shares through 45,32,000 warrants at a price of Rs 860.79 per share

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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