Music Broadcast Ltd
20/07/2017 Initiating Coverage
Long term barriers a positive for Industry: Radio Industry is protected by licenses for 15 years, thereby restricting the entry of new players. This would support the existing companies to strengthen their position and maintain a healthy growth rate. The new radio stations are being added in the semi-urban areas which is positive for the industry as this will increase the listener base. As radio broadcasting enjoys pricing advantage over other ways of broadcasting such as TV, print, etc. we believe that the industry is expected to see faster revenue growth going ahead, benefitting all the players. KPMG-FICCI expects the Radio Industry to grow at a CAGR of 16.9% over FY2015-20. Higher listenership, wider reach to fetch premium advertisement rates: As on March 31, 2017, Radio City reached out to over 52.2mn listeners in 23 cities (ENIL- 42.1mn). It grabbed the Number 1 position in Mumbai, Bengaluru and Delhi in terms of number of listeners. Leadership position in top markets, wider reach (62% of population) and better quality of content has enabled MBL to charge ~30% higher advertising rates than its peers and 12-15% higher charges than its closest peer. Owing to this, Radio City enjoys healthy 33.6% operating margin, much better than ENIL’s ~22% margin in FY2017. Leading the industry owing to better financials: MBL outperformed its closest peer with 18.4% CAGR in revenue over FY2013-17 (ENIL reported 13.2% CAGR in revenue). On the profitability front too, MBL, with 32.3% CAGR in PAT over FY2013-17, has performed much better than ENIL (-5.2% CAGR in PAT). Moreover, Radio City posted a six year CAGR of 12.1% v/s. 9.1% of industry owing to higher advertising volumes. Capex for next 15 years done, paving the way for healthy free cash flow: Capex for 39 licenses have been done for the next 15 years, hence no heavy incremental Capex requirement would emerge. Moreover, the maintenance Capex would be as low as `5-10cr. This would leave sufficient cash flow to distribute as dividend. Outlook & Valuation: We expect MBL to report Revenue/EBITDA/PAT CAGR of 17%/19.2%/47.6% respectively over FY2017-19E driven by launches of new stations, increase in advertising rates and improvement in utilization of radio stations. MBL is trading at relatively lower valuations compared to its peer ENIL on FY19E, (MBL is trading at P/E-26.3, P/B-3.1, EV/EBITDA-14.2 as compared to ENIL P/E-34.3,P/B-4.3,EV/EBITDA-18.6). Considering sustainable growth opportunities over the next 5-7 years, most of the capex already through and strong parentage, we initiate coverage on MBL with a BUY recommendation and a Target Price of `434 (31x of FY19E EPS `14/-.)
   Jubilant Foodworks Ltd
20/07/2017 Others
Jubilant FoodWorks Limited (JUBI) is a food service company. Jubilant FoodWorks’ Q1FY18 posted strong numbers on all fronts, with revenue at Rs6.8bn, up 11.5% yoy; EBITDA at Rs796mn, up 37.8% yoy; PAT at Rs239mn grew by 25.5% yoy. Same-stores Sales Growth(SSG) at +6.5% yoy was aided by healthy traction in Every Day Value offers. The company is confident of achieving a healthy SSG going forward on the back of consolidation of stores and new product offerings. The company is confident of break-even in Dunkin Donuts in FY19. Closure of unprofitable stores, SSG uptick, GST and break-even in Dunkin Donuts are the key levers for margin expansion. In FY18, Dominos is expected to add 40-50 stores, which is much lower than earlier annual run rate of 130-150 stores. However, 100 stores will be refurnished/relocated in FY18 to enhance customer experience. JUBI is virtually debt free and has reported average return on equity (ROE) 19.99% in last 3 years. Currently company has a RoE 8.46% and is trading at valuation EPS of 37.31x of TTM earnings. Hence BUY
   Bharti Infratel Ltd
20/07/2017 Others
Bharti Infratel Limited (BHIN) is a provider of tower and related infrastructure, and deploys, owns and manages telecom towers and communication structures for various mobile operators. Bharti Infratel (BHIN) has witnessed healthy tenancy addition over the last 2-3 quarters, led by aggressive 4g rollout by RJio and Airtel. In FY18, gross additions should remain high, as RJIo and Airtel are expected to continue accelerated data network expansion. BHIN’s management has indicated its willingness to explore Indus and other acquisition opportunities in the market. There is higher visibility about BHIIN utilising its RoFR and balance sheet strength to increase its stake in Indus Towers (Indus). Full control of Indus would ensure BHIN becomes a direct beneficiary of all future network rollout by the top 3 incumbents in India, and also improve BHIN’s capital structure. BHIN is virtually debt free company and has been maintaining a healthy dividend payout of 90.11%. Further the company has been consistent in maintaining hefty cash flow(FY17 Rs 2866Cr).The company has a RoE 17.72% and is trading at valuation EVEBITDA of 15.76x of TTM earnings. Hence BUY.
   Colgate-Palmolive (India) Ltd
19/07/2017 Others
Colgate-Palmolive Company (Colgate) is a consumer products company. The Company segments are Oral, Personal and Home Care and Pet Nutrition. While competing with Patanjali, Colgate has launched multiple products in ‘Naturals’ space and has been able to stabilise its market share after initial fall. Colgate’s indirect taxation will move from ~32% to 18% post rollout of GST. At the same time, the indirect taxation has moved from 5% to 12% on ayurvedic products, which may impact competitors such as Dabur and Patanjali. Going forward, Colgate will be a key beneficiary of GST, but it may pass on benefits due to anti-profiteering provisions. The company has raised prices of its key brands by ~7-12% over past six months and has also raised trade promotions. Price hikes and stability in market share also indicate management’s confidence about volume growth. With stabilising market share (as per Nielsen data), price hikes, normal monsoon prospect and imminent rollout of GST, Colgate is expected to regain lost market share as well as expand margins. The company has reported consistent improvement in cash flow from operations from Rs 402.84cr in FY12 to Rs 672.93cr in FY16. The company is virtually debt free and has a healthy return on equity (ROE) of 77.5% for the last 3 years. The company has been maintaining a healthy dividend payout of 57.6%. Hence Buy.
   Cadila Healthcare Ltd
19/07/2017 Others
Cadila Healthcare (CDH) is a well-diversified Pharma company with presence across more than 100 countries in the world and among the few Indian players to have presence in Consumer and Animal health businesses. Cadila Healthcare (CDH) has received approval for gLialda, the first and one of the most significant filings from Moraiya plant. Importantly, this development lends validation to CDH’s other complex generic filings, especially gAsacol HD and others like gToprol XL, gPrevacid ODT and transdermals. CDH aspires to more than double its US base business (~USD550mn currently) over next 3 years by launching ~100 new products (~180 pending ANDAs). Key product launches include gAsacol HD, gPrevacid ODT and gToprol-XL. Transdermal portfolio is expected to start contributing in FY18. Through a mix of organic and inorganic initiatives, the company also aims to build a specialty business tapping into opportunities both near- (NDDS filings + small brand acquisitions in pain area) and long- (own products in 3-4 therapeutic areas) term. The company has reported consistent improvement in cash flow from operations from Rs 511.10cr in FY12 to Rs 1993.80cr in FY16. The company has a healthy return on equity (ROE) of 29.7% for the last 3 years. The company has been maintaining a healthy dividend payout of 21.8%. With more productive.US pipeline awaiting approval, hope of a strong earnings growth for Cadila in the next few years continues and will support premium valuations. Hence Buy.
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