NDTV: Strong signals

NDTV saw good top line growth in Q3 though margins were under pressure

With costs spiralling, New Delhi Television's (NDTV) profit margin for Q3 FY06 has plunged 1000 basis points year-on-year, for the second consecutive quarter. That's

despite income from operations rising a smart 30 per cent y-o-y at Rs 68.3 crore, which reflects the strong position that the channel enjoys in the news genre. In fact, growth momentum has picked up in Q3 with income growing faster than in Q2 when it was just 21 per cent y-o-y.

Also, while the fall in the earnings before interest tax and depreciation (EBITDA) has been just about 5 per cent in Q3 FY06, the fall at the net profit level has been steeper at 85 per cent because the company has expensed Rs 11.5 crore worth of stock options in the quarter. Adjusting for this, the fall in the net profit would have been marginal.

EBITDA margins fell to 27.8 per cent in Q3. In Q2 too, EBITDA margins were under pressure, falling 1000 basis points y-o-y to 7 per cent, thanks to costs escalating on account of higher salaries and start-up costs for NDTV Profit.

In Q3 FY06, total expenditure has risen sharply to 72 per cent of revenues, from 61.8 in Q3 FY05. Salary costs as a percentage of revenues have gone up to 31.9 per cent from 28.2 per cent in Q3 FY05.

NDTV continues to expand its footprint, and during the quarter, NDTV was launched in the US, the UK and Canada through strategic tie-ups with DirecTV in the US, BSkyB in the UK and ATN in Canada.

It is also diversifying into other media spaces. In January, a wholly-owned subsidiary of NDTV has acquired as a minority shareholder, three radio companies that hold licences for FM radio broadcasting in Mumbai, Kolkata and Delhi.

At the current price of Rs 189, the stock trades at a multiple of 22.2 times estimated FY07 earnings and is reasonably valued given the robust business model and good growth prospects.

Shree Cement: bracing for a pick-up

Shree Cement has reported a 9.42 per cent y-o-y growth in its operating profit to Rs 43.18 crore in Q3 FY06, and that was higher than revenue growth of 6.5 per cent.

Operating profit margin grew by 81 basis points to 29.93 per cent in Q3 despite an incremental expenditure of Rs 11.26 crore on maintenance and refurbishment of machines. The stock, however, dipped 1 per cent to Rs 537.8 on Tuesday.

An 18.6 per cent fall in its power and fuel cost helped in better operating margins. Also, freight and selling expenses have declined 5.9 per cent y-o-y to Rs 23.58 crore in the last quarter. Meanwhile, cement prices in the company's key northern markets were 5 per cent higher on a y-o-y basis in Q3 FY06.

The company conducted trial runs for its recently set up 1.2 million tonne plant in Rajasthan, and it now appears well positioned to leverage post-monsoon demand pick-up. The stock trades at about 11.5 times estimated FY06 earnings.

Federal Bank: Costly funds

Though Federal Bank's net interest income has increased only 16.02 per cent y-o-y to Rs 149.44 crore in Q3 FY06, its operating profit has improved substantially by 34.05 per cent to Rs 112.59 crore. This improvement in operating profit is owing to a 4.29 per cent y-o-y drop in operating expenses.

Though interest income increased by 23 per cent y-o-y at the gross level, the bank's cost of funds has increased substantially as interest expense increased by 33 per cent. Other income was up by 9.35 y-o-y per cent to Rs 48.4 crore in Q3 FY06.

But at the net level, the story is different as profit after tax increased from Rs 12.01 crore to Rs 71.64 crore in Q3 FY06. In Q3 FY05, the bank had made higher provisions and, hence, its net profit had declined substantially. Last quarter, a 64.8 per cent reduction in provisions, which boosted the bottomline.

As a result of higher advances, its capital adequacy ratio dropped 67 basis points to 11.34 per cent. Its asset quality improved as its net NPA level rose by 55 basis points to 1.41 per cent.

During the quarter, ICICI Bank, which held 20.76 per cent in Federal Bank at the end of September 2005, started divesting its stake as RBI restricts cross-holdings among banks.

Federal Bank is also in talks to take over Ganesh Bank, which has 32 branches in Maharashtra and Karnataka and is under moratorium. The stock was up 2.26 per cent on Tuesday to Rs 179, and trades at a reasonable 1.5 times FY06 estimated book value.

With contributions from Shobhana Subramanian and Amriteshwar Mathur