>UTV Software Communications (CITI)

● Revising earnings — We pare our EBIT estimates by ~15-66% over FY09-11E, driven by cuts in TV content and movie verticals. We reduce our EPS estimates by ~12-15% over FY10/11E, but increase FY09E EPS by ~41% due to the increase in other income and interest income from the last quarter. Our SOTP based TP comes to Rs190 (Rs250 earlier), with the revised earnings and EV/EBIT multiples. Post a disappointing FY09 YTD, we maintain Sell/High Risk (3H) as subdued return ratios should prevent re-rating in the near term.

● Movies segment key to profitability — Filmed entertainment is inherently volatile; but remains key driver of earnings. FY09 has been below expectations – release of some movies (including 2 large budget films) slated this year were delayed. We take a more conservative stance for FY10E from management guidance, factoring release of 4 big films and take 14 movies overall. Upside potential from The Happening would be captured in next year's estimate.

● TV to remain lackluster — TV margins declined drastically, from ~18% in FY08 to 3-5.5% this year. Management cautioned that EBIT margins would remain in the sub 6% range. We expect muted revenue and profit growth from this segment, going forward - trim TV segment EBIT by ~50-60% over FY09-11E.

● Gaming has a high return potential; but only from FY11E — We view gaming vertical as a 'High Risk - High Return' segment. The three Ignition IPs - Reich, Wardevil, and Angelic - are expected to be released in Jul/Aug 2010, Dec 2010 and Jan 2011 respectively, and thus any uptick in margins from these would only be visible from FY11E. There is an exposure of US$15-20m on each game and break even would occur with 0.8-1m units, according to management.

To see full report: UTV