Dish TV - A Turn around story

Before I begin, If you are a short term trader please skip this recommendation.

Dish TV is one of the early entrant in the Direct-to-home (DTH) arena and currently the only listed player in this segment. As of 30th June'07 Dish TV has a strong 2.1 million subscribers. The company is currently investing to acquire subscribers and is yet to break even. The average cost of customer acquisition currently is around Rs. 2000/- per subscriber. Dish TV currently enjoys a market share of 75% in the DTH business which is going to provide a better edge for the firm when competition steps up with new entrants. The company currently has 170 channels in it's basket, which is the highest in the industry.

Dish TV is currently present in 4300 towns through more than 30000 dealers and 400 distributors. There are over 10000 service personals and 1000 call center agents to deliver more value to customers. Currently top 50 cities accounts to 33% of the subscriber base which shows the demand is equally distributed across pan India and not only in metros.

Based on the Estimates the company is expected to generate Operating profit by FY09 and net profit by FY10. Considering the current demand scenario analyst estimates the subscriber base to grow at compounded annual growth rate of 25% till FY12. The existing subscriber investment is expected to add on to the revenue growth by around 20-35% q-o-q.

The company is currently moving around it's 52 week low of Rs. 69/-. Adopt a invest on decline strategy on this stock. Invest in smaller chunks at regular intervals rather than having it brought in lots.

Fundamentals

1) Market share of 75% in the DTH segment.

2) The company has a established dealers and distributors network and wide coverage across pan India.

Risks

1) The company is currently a loss making firm. It has a negative operating profit till date.

2) Stiff competition expected from new entrants like Reliance, Sun, Barathi etc. in the years to come.

3) Initial investment being made currently per customer acquisition and advertisement costs is likely to impact the operating profit for sometime.

4) The company is planing an additional capex of Rs. 1300 crores through debt and equity. This inturn will increase the interest expense and can further dampen the earnings visibility.

5) Customer service being a key to this industry, the firm is expected to increase the on call personals and call center executive for faster and prompt service. This inturn is going to add to the expenses of the company.

Buy Chennai Petroleum

Despite it's strong underlying business, Chennai Petroleum (CPCL) has always maintained a low profile as compared to it's peers like BRPL and MRPL. With strong GRM's and refinery capacity expansion CPCL outlook seems to be positive and is expected to fetch better valuation going forward.

At the current market price of Rs. 280/- the stock traders at 7.3 times it's trailing 12 month EPS. The net profit in Q1 FY08 increased by 27% y-o-y despite 4% drop in revenues. The decrease in revenue seems to be attributed to the 15 days shutdown of one of CPCL's distillation unit. The Gross Refining Margin during the first quarter was an impressive US $8.76 per bbl as compared to US $6.64 per bbl during the corresponding quarter of the previous year. CPCL Q1 FY08 OPM stands at 7.28% as compared to FY07 OPM of 4.89%, thanks to the strong GRM's.

CPCL expects the Q2 GRM to be around the range of US $7.5 per bbl and the whole FY08 GRM in the range of USD $5.5-7. Based on the long term crude price assumption of USD 60/bbl and Re/USD assumption of USD 40 the stock trades around 5.8 times it's FY08E EPS of 48. Based on the factors discussed earlier CPCL has a target of Rs. 355/- with a time frame of 12 months.

Fundamentals

1) The company is expected to increase their refining capacity to about 12 million tonnes from the current 10.5 million tonnes by mid 2009.

2) Excellent and consistent financial track record.

3) Good track record of consistent and high dividend payment.

Risks

1) Stronger rupee can offset the realization by better GRM's.

2) Drop in price of CPCL products in International Markets.

Venkys India

At the current market price of Rs. 180/- the stock trades at 6 times it FY08E earnings of 30 per share. Investor with a medium risk profile can consider position in this stock for a duration of 9 to 12 months with a target of Rs.250. The company has seen a substantial increase in Operating margins during the last two quarters and is expected to maintain the same margin levels in the current year.

Venky's India is engaged in poultry breeding, processed chicken, poultry medicines, producing eggs and hatching layer. Venky's has a strong domestic presence and the domestic sales is expected to grow 15% this year. The company has annual service contracts with multinational giants like Domino's, Pizza Hut, KFC and McDonald's. Venky's has strong export presence in middle east and Asia pacific region. The revenues from export is expected to grow at around 30% this year.

Fundamentals:

1) Diversified product portfolio.

2) Government policy initiatives for agricultural projects.

3) Strong client portfolio.

Risks:

1) Bird flu which has been off late seen frequently appearing in some of the Asian countries can dampen the revenue forecast.

2) Competition from countries like Thailand, Vietnam and china which operate on lower cost.

Buy Tamil Nadu Newsprint (TNPL)

Investors with medium to low risk profile can consider investment in TNPL with a horizon of 18-24 months. At the current market price of Rs. 99 the stock trades at 8 times it's 12 months trailing EPS of 12.5. Despite the firm raw material prices, the company saw a marginal increase in the operating margin during the first quarter of 2008.

The company is in the process of completing it's Rs. 565 crore mill development plan which is slated to go on stream by October '2007. After the mill development plan in place the paper production is expected to raise to 2.45 lakh tpa from the current 2.3 lakh tpa.

The company margins are further set to raise in second half of FY08 after the mill development plan in place. The stock is currently trading at 6 times it's FY08E EPS of 16. Based on it's FY08E earnings the stock has a target of Rs. 132.

The company is planing to set up a mini cement plant with lime sludge generated as a waste product at it's paper unit. This is expected to be operational by march 2009. The company is also evaluating option to build a IT park at it's vacant Ambattur plot.

Fundamentals:

1) Modernization and Capacity increase of paper production.

2) Building Cement plant to utilize the waste generated out of paper production.

3) The company is sitting on an vacant land in chennai. Evaluating IT park to be constructed over there.

Risk:

1) Increasing raw material prices.

2) Rupee appreciation to crunch margins on paper exports.

3) Decline in International paper prices can impact the Operating margin of the firm.