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Zee Entertainment Enterprises reported an impressive performance as consolidated operating revenue grew by 35% to Rs 391.60 crore backed by an expansion in advertising revenue by 47% y-o-y to Rs 204.37 crore for the quarter ending June 30, 2007, while subscriptions grew by 27% to Rs 168.09 crore, and other sales and services were up by 9% to Rs 19.11 crore. Operating profit margin improved 770 basis points (bps) to 30.6% and the resultant net profit grew 47% to Rs 77.10 crore.
Zee Cinema also undertook many new programming and marketing initiatives to enhance viewer experience. The June 2007 quarter also showcased a big event – Zee Cine Awards. Zee Cinema achieved a channel share of 31%. Zee Cafe continued its lead over Star World in all-day ratings as well as prime-time ratings across five metros. Zee Cafe commissioned two new shows – Showbiz India Extreme, a variety programme that looks into the lives and times of the Indian diaspora in North America , and Top 10 countdown, listing the best and worst from various categories in fashion, lifestyle, Bollywood, music and luxury. Zee Studio introduced a unique initiative on world cinema, which included all-time great titles including Finally Sunday by Truffaut, Double Life of Veronique by Kieslowski and Twin Peaks by David Lynch. The channel premiered over 40 movies in the quarter. Revenue from the sports business was Rs 34.5 crore. It suffered a loss at EBITDA of Rs 3 crore in the June 2007 quarter.
Infosys
CMP: 1870
Target 1: 2354
Target 2: 2442
Current Quote of Infosys
Infosys Technologies has outlined its strategy to survive in an appreciating currency environment coupled with the end of the tax holiday in FY10. The company has over the past three years developed a number of solution-based offerings, which currently account for about 12% of revenues. These offerings enjoy margins higher than the company average. The company's nascent service offerings like infrastructure management, testing and consulting are growing at a rapid pace and are likely to be significant contributors going forward with margins higher than the company's average. Infosys also plans to make incremental capacity additions in SEZs thereby partly mitigating the impact of the higher taxes post the tax holiday period. The recent acquisition of Philips BPO adds delivery centers in Poland , Thailand and Chennai along with a $250 mn contract spread over five years. The company also hinted to the possibility of Philips becoming one of its top 10 customers by offering other services. I believe that the company is well poised to weather the current storm based on the above measures and recommend a buy on the stock.
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KLG Systel
CMP: 470
Target 1: 790
Target 2: 830
Current Quote of KLG Systel
KLG Systel has announced that on Aug 27, 2007 the Company has acquired 51% stake in Atlantis Lab Pvt Ltd, a dedicated engineering solutions Company. Atlantis will become a subsidiary of the Company post acquisition. The company valued Atlantis for Rs.24 crores and 51% stake would cost KLG about Rs. 12.4 crores. Atlantis is a dedicated engineering services company having presence at Chennai, Bangalore and Pune. Atlantis was incorporated in 2001 and within short time-span of operations it has good marquee clientele. The company provides mechanical design solutions to worldwide manufacturers such as GE, Whirlpool, Atlas Copco, TATA Motors, John Deere, Schneider Electric and Cummins, etc. Atlantis Lab's current service offerings include product design, design automation, design simulation tool, design data migration, and PDM/PLM solutions for the growing automobile, aerospace, Industrial machinery and Heavy Engineering markets.
Rationale for the acquisition:
Worldwide the Engineering Services market is making great strides. The recent NASSCOM BOOZ Allen Hamilton study of international trends in Engineering Services Outsourcing markets, predicts that by 2020, 25 to 30 percent of the projected $225 billion global offshore engineering services market could belong to India. This acquisition will enhance the company's service offerings, geographical presence which would increase its' addressable pie in the growing offshore engineering service market. The company derives its revenues from domestic markets with this acquisition the company will have access to North America and European market. The company is planning to expand its infrastructure capacity for 1000 at its head quarters in Gurgaon.
Future Plan:
The relationship will provide KLG Systel an opportunity to go to the ESO (Engineering Service Outsourcing) markets faster and widen its reach to the 3 design hubs at Chennai, Pune and Bangalore. Atlantis Lab already has a strong base in these cities. KLG plans to increase capacity at the newly acquired subsidiary to 1000 design & analysis seats by the end of year 2008 from existing 150 seats. The new subsidiary plans to focus on Automotive, Aerospace, Industrial Machinery. Heavy Engineering, Ship Building, Power and Process verticals where there is a strong demand for Product Design and Product Life Cycle solutions and services. The new subsidiary plans to offer a state of the art design solution and services like FEA (finite element analysis) / FEM in static, vibration, crash, impact, CFD (computational fluid dynamics), NVH (noise vibration harshness), BIW weld fixtures, Mold Flow analysis, Reverse Engineering, Electronics & Navigation systems, Technical Documentation, NC path generation, Plant Design, Plant stress analysis etc. This design centre will have an ultra modern RPD (rapid prototyping) and testing facilities for the industry, providing Company's clients to carry out live prototyping and testing of the designs being delivered. Currently there are very few design centers in the world, which offer a complete solution from design to prototyping and testing. The company is also planning to set up ODC (Offshore Design Centers) for its global and Indian clients, which will help the company to deliver value in terms of improvement in productivity with cost efficiency to its clients.
Business Overview:
KLG has been engaged in life cycle solutions and power system solutions. It offers knowledge solutions to oil & gas, process, power, metal, manufacturing and infrastructure sectors by providing a unique mix of domain expertise, software solutions, consultancy and training. Its technology partners are AutoDesk, COADE, IBM, Invensys, Microsoft, Oracle, Primavera, SAP and Unigraphics. Building on the deep power domain expertise and its relentless R&D, KLG has developed a solution that empowers consumers to manage their electricity consumption. This unique web based solution has been named as http://www.connectgaia.com/ which makes it possible for users to View, Visualize, Measure, Optimise and Manage the Energy Consumption in their Domestic, Commercial, Industrial, Government and Semi-Government establishments.
Valuation:
The outlook is distinctly positive especially with India's booming economy and development of new markets for Company's products. The Central Govt. is targeting to add a generation capacity of up to 70,000 MW in the 11th Plan, while it has also asked the states to bring down transmission and distribution losses to 15 per cent by 2010 from about 40 per cent now. KLG proposes to tie up with state electricity Companies to provide software solutions developed by it. The company's patented software solutions - Vidushi & SG61 will certainly help the electricity generating and distribution utilities to control transmission and distribution losses. Company's focus on brand building will enhance its presence in critical markets and add value to the Company's fundamentals. There is a vast scope of automation for mass production and Power System Solutions to control distribution and transmission losses in our country. I believe that there is a vast scope for improvement in its earnings and price appreciation as a result of increase in profitability. It is expected that revenue and profit will grow at 61.5% and 81% CAGR respectively over FY2007-10 period. The stock is currently traded at ~22x FY2007 earnings. The stock is certainly a outperformer with target price of Rs. 830.
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