>DQ ENTERTAINMENT (INERNATIONAL) LTD: IPO NOTE (SMC)

Company Profile
Incorporated in 2007, DQ Entertainment (International) Limited is one of the leading producers of animation, visual effects, game art and entertainment content for the Indian as well as global media and entertainment industry. The company is a producer, co-producer and global distributor of TV series, direct-to-home videos and feature films. DQ Entertainment also creates art games for online, mobile and next-generation consoles. The company has also forayed into production and distribution of live action television and feature films & recently moved from a pure outsourcing service model to one where it does most of its projects on a co-production model along with large animation studios, as well as developing their own Intellectual Property (IP) content.

DQ Entertainment with its Production, Sales, Licensing and Distribution centers in India & abroad has a work force of 3500+(2788 permanent employees and 712 freelancers and trainees).

Strengths
■ Low-risk business model
The strength of DQE lies in its low risk business model i.e entering into intellectual property ownership & distribution. The model not only helps the company in generating production margins but also helps in acquiring rights to earn licenses revenues.

■ Robust Order Book
DQE has a strong order book worth USD 95.07 million (Rs. 4,567.16 million approx.), providing high levels of earning visibility. More than 80% of FY10 revenues are identified with over 40% of the order book already in various stages of production & balance to commence during the year.

■ Diversified client base
The company has a client base of over 90 companies which includes internationally recognized brands such as, the Disney Group, Nickelodeon, American Greetings, BBC, Moonscoop Group, ZDF-Germany, Australian Broadcasting Corporation and NBC Universal to name a few.

■ Innovative in-house animation techniques
DQE has developed several in-house animation techniques and technologies, which the company believes have given it an advantage over its competitors.

Strategies
■ Capitalize on the growth of the animation industry
At an estimated size of USD 494 million in 2008, the Indian animation industry is miniscule as compared to the global animation industry with estimated revenues of USD 68 billion in 2008.This leaves huge growth potential for the Indian animation industry which is likely to reach a size of about USD 1095 million by 2012. The company intends to capitalize on such growth factors by leveraging its international experience and expertise in this sector to the domestic animation industry.

■ Continued focus on co-production business model
The company intends to continue entering into co-production agreements to obtain larger percentages of the global, cross platform intellectual property and distribution rights in its productions

■ Acquisitions, strategic investments and joint ventures
DQE plans to grow through acquisitions of, strategic investments in and joint ventures with creative companies to ensure co-development of global intellectual property on a partnership basis.

To read the full report: DQ ENTERTAINMENT

>Indian Steel: Steel majors raise prices post budget 2010 (UBS)

■ SAIL has increased prices by Rs600; JSW Steel by 2%
SAIL has increased steel prices by Rs600/t post the 2% hike in excise duty announced in the government’s annual budget. JSW Steel raised its prices by 2%. Our channel check indicates similar price hikes by Tata Steel. Average prices in India before the budget were Rs34,800 for HRC and Rs32,500 for wire rods (including 8% excise duty and 4% VAT).

■ Other Asian companies such as JFE and Nippon Steel raised prices
JFE and Nippon Steel raised their export steel prices by US$200/t (previously around US$550-600 versus the domestic price of around US$800).We believe this is largely in anticipation of higher raw material contract prices and could be positive in the near term as it highlights steelmakers’ ability to pass on raw material price hikes. However, we remain concerned global overcapacity (especially in China) and tightening measures in China could lead to softening of steel demand and prices in H210.

■ Key near term event—raw material negotiations
BHP will be in Tokyo next week to negotiate coking coal contracts with Japanese steel makers. We believe it could press for quarterly price contracts, as an alternative to annual benchmark prices. Spot coking coal is more than US$200/t versus the contract price of US$129/t last year. Iron ore spot (CIF China) is around US$138/t versus the contract price of US$61/t last year.

■ We remain cautious on the Indian steel sector
We believe it will be difficult for the sector to outperform in a rising cost scenario. We would prefer mining names over steel names. However, we think Indian steel companies could outperform Asian peers due to higher iron ore integration (most Indian companies import the bulk of their coking coal requirements).

To read the full report: INDIAN STEEL

>TELECOM - 3G POLICY (INDIA INFOLINE)

Eventually the government after much delays and controversies has managed to announce the schedule for 3G/BWA spectrum auction. According to the notice inviting bids from telcos, 3G auction would start on April 9, 2010 while BWA auction would follow 2 days after close of 3G auction. For 3G, a minimum of 3 slots of 2xMHz each in the 2.1GHz band would be offered at a pan-India reserve price of ~Rs34bn. This figure is above the average of the respective asking prices of DoT and the finance ministry.

To read the full report: 3G POLICY

>Lessons from the Greek crisis

The fiscal position in the euro zone overall compares favourably with the United States, the United Kingdom and Japan in terms of both the government deficit and debt ratios, and the area has adequate domestic savings, as demonstrated by its balanced external trade accounts. However, the slide in the public finances of a number of countries in the zone led by Greece (Chart 1) has caused a very sharp rise in sovereign debt yields (Chart 2). Portuguese and Spanish bonds have been affected by contagion. Under attack from the markets, Greece has been given explicit support by the European Union: “Euro area members will take determined and coordinated action if needed to safeguard stability in the Eurozone as a whole”. It was defence of the financial stability of the whole euro zone that was stressed in the 27 EU countries’ statement, but the message to the markets, together with support for the Greek government’s current efforts to clean up its public finances, was very clear.

Default is not an option. Default would lead to contagion, causing yields to rise, and to more intense measures to rebuild public finances which would be likely to push the euro zone back into recession. Banking systems, which have in the short term financed the purchase of government securities, would also be affected, not to mention the risk to liquidity that would be created by further downgrades of sovereign ratings (the ECB only accepted paper rated A- before the crisis, but has cut its requirement to BBB+, although it has announced its intention to return to the previous level at the beginning of 2011).

The technical details of any plan have not been disclosed, but would not be without legal and political difficulties (Coordinated bilateral assistance? Early payment of European funds? Bridging loans? Guarantees from national treasuries?). On 16 March, the Greek authorities will have to provide a detailed timetable of the planned measures for reducing the government deficit by 4 points of GDP in 2010, and by about 10 points by 2012, as laid out in the stability and convergence plan approved by the European Commission at the beginning of February. If it looked as if the 4 points of GDP deficit reduction target is not going to be met, additional measures would have to be taken, on terms set by the European Commission, which has felt it necessary to call on the technical skills of the IMF. These arrangements are unprecedented. Greece has now been placed under strict surveillance and any assistance (it should be borne in mind that the Greek authorities have not yet officially asked to be helped) is subject to conditions. What must be avoided is the appearance of a bail out, since this is prohibited by the Maastricht Treaty.

To read the full report: GREEK CRISIS