NDTV: Weak signal

NDTV's operating profit margin plummets

Burdened by increasing employee and other expenses, NDTV's operating profit margin for FY06 plummeted 1000 basis points to under 20 per cent while the net profit (before minority interest and ESOP) fell 25 per cent to Rs 27.5 crore.

Revenues for the year grew at a reasonably good rate of 26 per cent to Rs 221 crore, driven by a strong performance in Q4 during which the top line rose nearly 43 per cent. That was probably what caused the stock to rise almost nine per cent in Tuesday's trading.

Revenues are likely to grow at a fairly good rate given the strong economy and consequent increase in the advertising pie. However, there is strong competition emerging in the news genre.

NDTV's global distribution tie-ups with DirecTV, ATN and BSkyB could fetch it good revenues""estimated at Rs 20 crore annually.

However, NDTV's costs are likely to remain high for some time, whether it is due to expenses on its new channels, promotion, marketing or salaries "" total expenses as a percentage of sales were up nearly 1000 basis points during the year, though the rise in Q4 was lower at 500 basis points.

Besides, NDTV's foray into new areas "" the company has picked up a stake in Red FM and entered into an alliance with Genpact for outsourcing media services "" could entail some expenditure.

Thus pressure on the margins "" which fell 542 basis points in the March quarter""are likely to continue. At the current price of Rs 275, the stock trades at over 37 times estimated FY07 earnings and around 26 times estimated FY08 earnings.

After under-performing the market for the better past of FY06, the stock has been an outperformer since November 2005. The company now has a more diversified business model and should deliver value in the long term.

Container Corporation

Container Corporation of India has once again seen its operating profit margins come under pressure. The company has reported a 60 basis points y-o-y dip in its operating margins to 28.91 per cent in the March 2006 quarter, despite operating profit rising 21.9 per cent to Rs 196.64 crore.

In the December 2005 quarter too the company's operating margin fell about 200 basis points y-o-y to 27.76 per cent.

Sluggish margins in Q4 FY06 are mainly due to rail freight expenditure jumping nearly 38.2 per cent y-o-y to Rs 365.36 crore.

Meanwhile, the company's key Exim business reported a 25.84 per cent growth to Rs 515.81 crore in the last quarter, reflecting the continued buoyancy in international container traffic.

Analysts, however, highlight that higher expenditure incurred for rail freight led to the segment profit of Exim rising only 11.3 per cent y-o-y to Rs 141.7 crore in Q4 FY06.

The government has also allowed private sector companies to offer rail container services, and Concor will no longer be the monopoly. At Rs 1,440, the stock trades about 15 times estimated FY07 earnings, which is a reasonable valuation.

UTI Bank: Stellar show

Once again, UTI Bank has announced splendid results. A near 60 per cent rise in net interest income and its ability to maintain margins saw the UTI Bank stock go up by 5 per cent on Tuesday.

The bank managed to pass on rising interest costs, as its net interest margin improved by 32 basis points y-o-y to 2.96 per cent in the March 2006 quarter, though cost of funds rose by 18 basis points y-o-y.

A 43 per cent rise in both advances and investments over previous year and a higher proportion of low cost deposits. Current accounts and savings deposits accounted for 40 per cent of total deposits, as compared to 35 per cent in Q3 FY06. Its other income increased by 37 per cent, as trading income rose only 17 per cent.

Retail advances grew by 55 per cent y-o-y and account for 29 per cent of the bank's total advances. Net NPAs also reduced by 20 basis points over the December quarter to 0.75 per cent.

The bank's balance sheet grew by 32 per cent for the full year. Provisioning and contingencies went up over 300 per cent, and as a result net profit growth was lower at 30 per cent. At the current price of Rs 351, the stock trades at a reasonable 2.9 times estimated FY07 book value.

With contributions from Shobhana Subramanian and Amriteshwar Mathur