Monday, January 9, 2012

>2012: The World Is Not Coming To An End…

Considering the way 2011 is being looked upon by investors and non-investors alike and inferences being drawn for 2012, it seems that the prophecy made by someone that ‘the world will come to an end in 2012’ is being taken too seriously!

Well undoubtedly if we make a list of the positive and the negative events of 2011 the Well, undoubtedly, 2011, latter will certainly outperform (we are not making the same here though). However, to assume that the world will not be able to rise above the challenges, sooner than later, will be na├»ve. Then why be pessimistic? If humans don’t evolve in terms of solving financial problems, tackling nature’s fury, and achieving improvement in technological and capital efficiency, then who will? How will the world grow?

And with India yet to cover substantial ground to reach the coveted ‘developed economy’ status, rest assured, the 1.2bn Indian workforce is working towards this goal. Add to this the 1.3bn workforce of China and we get over 35% of the world’s ‘young’ population seriously racing to be part of the next super powers.

With the above optimism and faith in human prowess, and not trying to undermine the near-term challenges that need to be tackled, we look at a set of Q&A (definitely not exhaustive) that should help enlighten equity investors about many issues that are important from his/her investment point of view and may be at the top of his/her mind.

1. How is the global and domestic macro environment stacked up?

2. What are the headwinds that are collectively affecting consumer spending / corporate investments / economic growth / investor sentiments / stock market fortunes?

3. What is the probability of an improvement in the domestic economic scenario in 2012?

4. So, when can one expect an easing in RBIs monetary policy?

5. What global/local indicators must be watched out for in 2012 that will have a direct positive/negative impact on Indian equities?

6. At what level is the market expected to bottom out?

7. What should be the investment strategy for equity investors in 2012?

8. Which are the sectors one should look forward to in 2012?

9. Is there a possibility for an investor into Indian equities to make money in 2012?

10. Ok, so what is the conclusion for 2012? Is it the end of bad news?

To read full report: STRATEGY

>MEDIA: Performance by Balaji Telefilms, Info Edge, Dish TV, ENIL, HT Media, Jagran Prakashan, Sun TV Network & ZEE Entertainment

Slowdown to impact growth

In the backdrop of economic slowdown, media companies are expected to report negative growth with TV broadcasters being worst hit followed by radio and print. Margins are expected to contract across broadcasters and print companies while PAT will de-grow by 9.9% YoY across our coverage universe. We expect negative surprises across companies.

 Slowdown to impact growth: In the backdrop of economic slowdown across sectors, festive season remained lacklustre for the companies with ad revenues coming under pressure. We believe TV broadcasters are the worst hit during the quarter followed by radio and print companies. We are expecting a de-growth in ad revenue for ZEEL and ENIL while Sun TV Network is expected to show flat growth. Print companies are expected to post ~10-13% ad revenue growth during the quarter.

 Subscription revenues to grow marginally: ZEEL is expected to post marginal growth sequentially in subscription revenues whereas Sun TV’s analog subscription revenues are expected to de-grow, though DTH revenues of both companies are expected to post robust growth. However, Dish TV is facing challenges on subscriber additions post festive season.

 Margins under pressure: Margins are expected to shrink 396bps YoY for our coverage companies. Both print & broadcasting companies are expected to report margin contraction. ENIL, Info Edge and Dish TV are expected to register the maximum rise in margins.

 Profits to decline: PAT for our coverage universe is expected to de-grow by 9.9% YoY. However, sequentially, it is expected to register 4% growth. The print sector is expected to outperform the broadcasting sector due to higher ad revenue growth. The base effect is also expected to impact broadcasting companies.

 Equal weight on the sector: We maintain Buy on Sun TV, Jagran Prakashan, ENIL, ZEEL and HT Media. We have a Hold on Balaji Telefilms and Sell on Info Edge.

To read the full report: MEDIA



To read details: INR

>Optus (Australia) Singapore ops & Sing Tel (Singapore)

On a stable footing

Optus (Australia) has been resilient against competition and the planned initiatives on the network side would strengthen its competitive position even further. In India and Indonesia, voice tariff competition is abating, leading to an improved operating environment. While slower Singapore economy growth and the strong SGD is a concern, we maintain our dividend payout ratio of 78%/88% for FY13/14. We maintain our S$3.34 TP and ADD rating.

Post-paid market dominance to continue in Singapore: While the government has forecast 1-3% GDP growth in 2012, we view telecom spending to be relatively resilient. Mobile post-paid segment should continue to drive growth. Higher smart-phone subsidies could be a drag on margin, but this would be more than offset by lower content costs and margin upside in the IT business.

Optus well placed against competition: Optus has been strongly outperforming competition and holding Ebitda in a shrinking Ebitda pool. It has planned a number of initiatives such as 900MHz for 3G and trialling LTE. While Telstra could gun for lost revenue market share by tariff cuts keeping the competitive intensity high, we believe Optus should continue to out-perform due to its innovative offerings and tight cost control. Weak outlook for A$ vs. S$ (due to bearish outlook for commodities) and the Australian economy’s vulnerability to an impending slowdown in China are macro risks.

Competitive landscape evolving in India and Indonesia: We expect 14% revenue growth for Bharti in FY13 driven by tariff increases, 3G, in addition to subscriber growth. Clarity should emerge as key regulatory decisions are expected soon. In Indonesia, while there is some competition in 3G, we do not expect brutal tariff wars, as telcos also have to bear smart-phone subsidies. Telkomsel’s superior network quality would make it better positioned to leverage data revenue growth. There are margin levers in the form of lower licence and frequency fees. Weakening LCYs vs. the S$ is a concern though.

Singapore ops: Post-paid dominance to continue

Overall economy poised for a sharp slowdown, but wireless on strong footing: Singapore economy contracted 4.9% QoQ in 4QCY11 registering the second contraction in three quarters. The Singapore government has cut the 2012 GDP growth rate forecast from 4-6% to 1-3%, anticipating a sharp slowdown. Telecom should maintain its defensive characteristics – there is a portion of travel and communication discretionary spend which can convert to telecom revenues, though telecom may see an absolute revenue growth drop.

SingTel continues to have a commanding presence in post-paid. Its market share has increased based on emphasis on network and service quality, though it may seem to be an insufficient differentiator.

Multiple margin props: Ebitda margin will have multiple levers from lower content costs in pay-TV and margin expansion in the IT business and we expect this to offset the impact of higher subsidies due to iPhone 4S being a raging hit.

To read the full report: SING TEL