Buy Sun TV Network Ltd. For Target Rs.515


DTH revenue and cost of revenues key monitorables
Improved radio performance and lower capital advances positives
Weak business momentum for the group DTH arm Sun Direct
Subscription revenue from Sun Direct DTH declined 3% YoY to INR1.78b implying fall in its contribution to 48% of Sun TV’s DTH revenue in FY13 vs 55% in FY12. Overall DTH revenue for Sun TV grew 12% YoY indicating a strong 30% YoY growth from other DTH operators. Business momentum for Sun Direct likely remains weak as indicated by decline in revenue contribution as well as lower advertising on Sun TV Network (down from INR264m in FY11 to INR97m in FY12 and INR2m in FY13). Receivable days for revenue from Sun Direct has increased from 118 days in FY11 to 200 days in FY12 and 205 days in FY13.
Cost of revenue up 280bp YoY on lower mix of broadcast slot model
Cost of revenue increased 54% YoY to INR1.55b led by higher costs related to program production and program rights. Contribution of programming based on traditional model (vs the slot model used by Sun TV) has increased as indicated by decline in broadcast fee and increase in contribution of advertising revenue to the overall Ad & broadcast revenue.
Increase in provision for doubtful debts on advertising revenue; contingent liability up due to tax cases
Provision for doubtful debts increased ~11x YoY to INR244m (1.3% of revenue) largely on advertising revenues. Contingent liabilities increased 78% YoY largely due to disputes related to income-tax. Our interactions with the management indicate that the company has subsequently won some of these cases making it eligible for refunds with interest.
INR1.05b net cash outgo towards replacement of aircraft
Sun TV sold its existing aircraft for ~INR1.9b (~INR50m profit on sale) and replaced it with another aircraft for a consideration of INR2.95b resulting in a net cash outgo of ~INR1.05b. Sun TV depreciates the costs incurred towards purchase of aircraft using the straight-line method based on estimate of useful life of 15 years. This implies ~20m additional depreciation cost per year due to aircraft replacement.
Improved performance in radio subsidiaries; decline in capital advances likely reflecting lower movie advances
Performance of radio subsidiaries – Kal Radio and South Asia FM - improved significantly with combined revenue growing ~25% YoY to INR1.13b and post-minorities PAT of INR108.5m vs loss of INR65.4m in FY12. Capital advances declined ~45% YoY to INR2.08b (vs 3x increase in FY12) likely reflecting lower advances towards movie acquisition.
18% earnings CAGR; maintain Buy with a price target of INR515
The stock trades at P/E of 20.3x FY14E/16.4x FY15E and offers an FY14E dividend yield of 2.7%. Maintain Buy with target price of INR515 based on 18x FY15E EPS plus INR80/sh to incorporate 50% of potential digitization upside.


 Buy Glenmark Pharmaceuticals Ltd. For Target Rs.633


Prepared for next leg of growth
To focus on consolidation, improving profitability for three years We met Mr Glenn Saldanha, CMD of  Glenmark Pharma (GNP) to understand the outlook beyond the USD1b sales achieved in FY13. Our key takeaways:
* The action plan over  the next three years is to consolidate presence in existing markets, focus on improving profitability and generate free cash flows, which  would be used to retire debt.
* GNP is confident of maintaining high revenue growth and expanding EBITDA margin further. Growth would  be organic and culminate from capex already incurred.
Long-term vision in place; to grow organically for next three years
GNP is confident  of achieving revenue CAGR of 22-25% over the next threeyears, driven by key emerging markets, India and US. It expects EBITDA margin  to  xpand further, led by improvement in Brazil (broke even in FY13) and Central Eastern Europe (will break even in FY14).
To maintain high  growth in US market, led by differentiated filings
The company believes that growth in the US will be led by differentiated filings, as the generic market continues to get commoditized. It has  already started investing in areas such as Oncology, Dermatology and OCs. GNP plans to counter commoditization of the US generic market  through commercialization of some of its NCEs/NBEs.
Well placed to outpace industry in domestic market
While the Indian pharma market is  expected to witness a slowdown due to New Pricing Policy, GNP is confident of significantly outpacing the market. In the longer run, industry  growth will taper off due to paucity of product  opportunities and intensifying competition. Incumbents will turn to less regulated overseas  markets to offset this slowdown.
Valuation and view
We expect GNP to gradually reduce its net debt over FY14-15, resulting in debt-equity  mproving from 1x in FY13 to 0.7x by FY15. Return ratios will gradually improve over the next two years, with RoCE increasing  from 16% in FY13 to 20% in FY15 and RoE increasing from 18% to 21%. GNP has differentiated itself among Indian companies through its  significant success in NCE research (resulting in licensing income of USD205m till date). Maintain Buy with a target price of INR633.
  Buy Opto Circuits India Ltd. For Target Rs. 29.10 and 34.30
 The stock has provided a breakout above 25.80 level s which is well confirmed by the volumes on the hourly charts. The Bollinger bands  have narrowed a lot which means that the up move should be quite strong. The height of the triangular pattern from which it has broken out is 5.40  points; hence the minimum target on the upside is 29.10. In case of wave C equals to wave A, the target comes to 34.30. The support or  reversal on the lower side is pegged at 24.25; hence the risk reward is quite favorable for the bulls. The momentum indicator MAC D is well in   buy mode and has it has been showing positive divergence.