Kotak Securities puts REDUCE on UTV Ltd

Kotak Securities puts REDUCE on UTV Ltd

The UTV stock has corrected sharply (c58% in the last 1m) validating our concerns on its premium valuations in an increasingly risk averse market.

A below par Q2FY09 reflected the challenges of continued execution in movies and losses from its broadcasting venture- pressure points that we have highlighted earlier.

UTV’s current valuations are now more in line with peers and reflect a challenging macro and losses from BCS that are likely to be a drag on consolidated earnings over the medium term.

At 12x forward EPS while valuations may look reasonable relatively and historically, we await better execution in BCS, sustained profitable growth in content and better earnings quality to turn more positive on UTV’s medium term prospects.

We note the steep fall since our previous downgrade; at the same time we opine risks to earnings remain, from- a challenging macro, BCS losses and sustained execution across all verticals.

The same keeps us cautious and precludes a more positive near term outlook. We maintain our REDUCE rating with a price target of Rs350 (Rs630 earlier) and await better risk-reward.

Proactive steps though, to re-calibrate its broadcasting strategy are a positive, reflect well on the management’s approach to a changed marketplace and bode well for longer-term prospects.