>GMR INFRASTRUCTURE (NOMURA)

Fund raising post QIP failure a surprise

Investment Conclusion
We reiterate our REDUCE rating on GMR Infrastructure (GMRI) given what we deem to be its expensive valuation and our expectation of several disappointments relating to growth opportunities and in the airports segment. GMRI revealed plans to raise INR75bn yesterday, although its apparent need is much less, in our opinion. Importantly, it did not share any concrete
plans to use the funds thus raised; this is a key concern.

Summary
■ In an analyst meeting yesterday, GMRI shared its vision to grow at a rapid pace and with a hurdle rate of 16-18% IRR from new projects.

■ It believes dividends from InterGen would be sufficient to pay off acquisition debt.

■ Surprisingly, GMRI revealed plans to raise INR75bn over FY10-12 even as medium-term
requirement for projects under development is only INR28.5bn as per GMRI's estimates.

■ The plan envisages a separate listing of segment holding companies with a view to unlock value. We see this as a negative for the parent as one would now attribute a holding discount to GMRI since investors can pick and choose segments in which they would want to invest.

To see full report: GMR INFRASTRUCTURE

>STEEL SECTOR (MACQUARIE RESEARCH)

What’s the deal?

Event
■ Small stake sale or big deal: Struggling to get a foothold in India, world steel major, Arcelor Mittal has entered into an agreement to acquire a 35% stake in a small re-rolling company, Uttam Galva. We think that this deal creates a new bench mark in both valuation and outlook for the Indian steel sector.

Impact
■ The assets – small re-rolling facility: Uttam Galva has 900kt of cold rolling capacity, 750kt of Galvanising lines and 90kt of colour coated capacity.

■ The valuation – very high: The deal price signifies a trailing valuation of 1.7x P/BV, 14.4x PER, and 7.9x EV/EBITDA. Even though it is just a rolling facility, it is being valued at EV/t of US$652. This compares with Tata Steel trading at EV/t of US$600.

■ Strategic rationale – entry in lucrative Indian market: The Indian market is one of the few fast-growing markets, which has a supply deficit. Arcelor Mittal’s own efforts to gain an entry through Greenfield projects have been unduly delayed due to land acquisitions and other issues. Uttam Galva mostly imports hot rolled coil for value addition. This gives Arcelor Mittal a ready market to sell its products. Also, it gets exposure to some upstream initiatives which Uttam Galva is pursuing.

■ Highlights difficulties in setting up large steel capacity: Both Posco and Arcelor Mittal have announced large steel projects of 12mtpa each. Even after 3–4years, and full support of the central government, these projects have hardly made any headway. The issues involved are allocation of resources, land acquisitions and environmental clearances.

■ Further opportunities – plenty: However, many small steel companies, like Electrosteel Casting, Monnet Ispat etc., have cornered large iron ore and coal resources and are pursuing large steel projects. This deal gives some visibility as to the possible valuation trend.

Outlook
■ Maintain Outperform: The Indian steel market is the 2nd fastest growing steel market globally with cheap availability of iron ore making it ideal for steel production. We believe that domestic steel companies are better placed to grow given the issues faced by most multi nationals trying to enter the Indian market. Also, we believe any further consolidation attempts will lead to better value discovery. We maintain our Outperform on Tata Steel and JSW Steel.

To see full report: STEEL SECTOR

>MEDIA SECTOR (ICICI SECURITIES)

Ad environment likely turning more positive

Hindi GECs – Zee TV #1 in prime time; NDTV Imagine loses ground
Competition within tier I of Hindi GECs remained high, with Colors and STAR Plus at the #1 spot alternatively in different weeks in August ’09. Zee TV continued to generate stable GRPs, and bridged the gap from the #1 player to 15-30 GRPs in August ’09 from 30-40 GRPs in July ’09. Zee TV was the clear #1 in prime-time GRPs, while Colors and STAR Plus shared the #2 and #3 spots. NDTV Imagine lost GRP share post the finale of its blockbuster show, Rakhi Ka Swayamwar and its GRP dipped below 100 to 93 in week 35 after 13 weeks of continuous >100 GRPs. Sony Entertainment TV maintained its GRP share and was the #4 player in weeks 33-35.

Ad rate hikes by Deccan Chronicle and Zee Entertainment Enterprises
In an indication of improving ad outlook, Deccan Chronicle (DCHL) announced a 20% hike in its ad rates starting October 1, ’09. However other print players such as Jagran Prakashan and HT Media commented that they do not plan to increase ad rates in the near future. In the broadcasting space, Zee Entertainment Enterprises (ZEEL) is expected to increase its ad rates up to 10% across its different channels. While the macro environment has turned positive, the unknown impact of deficient monsoons could play spoilsport.

Zee News – Competition & distribution issues worrisome
Zee Bangla and Zee Kannada continued to lose GRP share in their respective markets owing to intensifying competition from the STAR Group channels – STAR Jalsha in West Bengal and Suvarna TV in Karnataka – and possible distribution issues. Zee Marathi remained the #1 player in the Marathi market, but intensifying competition from STAR Jalsha led to loss of GRP share. Zee Telugu also lost GRP share in the fragmented Telugu market as Maa Telugu, another #2 spot contender, witnessed increase in GRP share in August ’09.

To see full report: MEDIA SECTOR

>INVESTOR'S EYE (SHAREKHAN)

INDEX

■ Pulse Track >> IIP on the growth path
■ Stock Update >> Sun Pharmaceutical Industries
■ Sector Update >> Telecommunications

To see full report: INVESTOR'S EYE 110909