UTV Software Communications Limited operates in the verticals of Television, Movies, Broadcasting, Gaming and New Media and is thus close to achieving the status of a 360 media company. Walt Disney, which is a leading global player in the Media and Entertainment (M&E) Industry, holds 60% stake in UTV.

Quarterly Results - Revenues in line with our Expectations

- UTV declared its Q1FY10 results which were in line with our expectations on the revenue front. The company reported revenues of Rs. 115.4 crores in Q1FY10 as against Rs. 137.1 crores in Q1FY09 a fall of 15.8% on a YoY basis and Rs. 182.1 crores in Q4FY09, a 36.6% fall on a QoQ basis.

- The company reported a loss at the EBIDTA level of Rs. 32.9 crores in Q1FY10 as compared to a profit of Rs. 22.4 crores in Q1FY09 and Rs. 7.4 crores in Q4FY08.

- The company reported a net loss of Rs. 23.3 crores in Q1FY10 as compared to net profit of Rs. 19.9 crores in Q1FY09 and Rs. 10.6 crores in Q4FY08.

Lower revenues and constant nature of expenditures lead to operating losses

- The revenues of the company was lower because there was no movie releases in Q1FY10. In the gaming segment also there was no new release in the current quarter. When compared to Q1FY09 the revenues have decreased 15.8% because there were two major movies in the quarter viz. Jodha Akbar and Race.

- The expenditure of the company has increased to Rs. 149.4 crores in Q1FY10 as compared to Rs. 119.3 crores in Q1FY09 mainly because the employee expenses have increased by 52% in the current quarter.

- Out of the 5 business verticals, Gaming, Broadcasting and New Media are all in the investment mode and thus the company has incurred operating losses.

Going Forward

In the TV content segment, other than the dominance in the air time sales space, the TV content production business will see shows on air from Q3FY10 combined with a thrust in programs produced in Tamil and Telugu languages as well.

UTV has three releases in Q2FY10 and nine more releases in Q3FY10 and Q4FY10 with Q3FY10 having the biggest of releases. Thus the movies segment will continue to remain the major constituent in the revenues of the company.

In the gaming segment, Ignition has two games releasing in the US and EU – King of Fighters XII and Muramasa – The Demon Blade. The company will see continued growth through release of its “publishing” games while 3 of its big IPs release in FY11. The online game to be released by True Games, Warrior Epic is still in “Beta” mode.

Valuation & Recommendation

At the current market price of Rs. 423 per share, UTV is currently trading at a PE of 26.8x FY10E and 11.5x FY11E EPS estimates, which looks quite attractive. At Rs. 423 per share the stock is trading at a discount of 40.8% from our intrinsic price of Rs. 600 per share which is 38x FY10E and 16.3x FY11E earnings. We recommend a BUY rating on the stock with a long term view.