Stock views on PSL, SUN TV NETWORK, UNITED PHOSPHORUS

CITIGROUP on UNITED PHOSPHORUS

Citigroup maintains `Buy' rating on United Phosphorus (UNPO). After waiting for over two years for more reasonable valuations, UNPO has resumed its inorganic thrust by acquiring DuPont's mancozeb. Besides bolstering UNPO's presence in the global mancozeb market, this deal will improve its traction in South and Central America. UNPO can start selling Manzate right away, while the facility would be transferred in a few months. UNPO is already a leading player in the product and this deal consolidates its position, especially in South and Central America. While the exact numbers are unavailable, Citigroup understands that DuPont has about 10-12% share in the global mancozeb market - implying upside of about $50-60 million sales for UNPO. Citigroup awaits details on valuation before changing estimates but is enthused by management's indication that the deal meets its three-four year payback hurdle. Citigroup believes valuation expectations have turned reasonable after a rough CY09 and UNPO, with its strong B/S (balance sheet) and FCF (free cash flow), is well placed to capitalise. This would remain a key catalyst for valuations going forward as well.

BANK OF AMERICA on SUN TV NETWORK

Bank of America retains 'Buy' rating on Sun TV Network with a target price of Rs 480. Sun TV (SNL) reported strong Q4 results with revenue growth of 42% y-o-y to Rs 390 crore, driven by about 45% y-o-y growth in advertisement and 57% growth in DTH lead subscription revenues. DTH revenues grew 90%. Q4 PAT grew 45% y-o-y to Rs 160 crore. FY10 PAT grew 41%. DTH revenues in FY10 grew 118% to Rs 180 crore. Advertisement revenues grew 40% to Rs 850 crore. Contribution from channels launched during the year i.e. comedy and kids, and strong focus on monetising inventory during off peak hours lead to strong growth. Bank of America forecasts strong 27% earnings CAGR over FY10-12E and retains 'Buy' rating given the view that regional markets are likely to grow faster than pan India and SNL is likely to benefit given its strong leadership position in the southern region, making it more resilient to an economic downturn versus peers.

HSBC on PSL

HSBC maintains `Neutral' rating on PSL, however, it reduces the target price to Rs 140 from Rs 180. PSL, the largest Indian spiral pipes company, reported FY10 results in line with consensus. FY10 sales grew 11% y-o-y to Rs 3,940 crore on higher steel prices, despite flat y-o-y volumes of about 475,000 tonnes, with an about 20% sales volume contribution from the US and Dubai subsidiaries. The stock has underperformed markets by 28% and peers by 9-32% since January. HSBC believes that the stock, after correcting 34% since January '10, may remain sideways as the order book has declined 46% y-o-y to Rs 200 crore and sequentially by about 30%. In tonnage terms, the order book at the end of FY10 stood at 0.3 mt, which has fallen 45% y-o-y. The management has indicated that orders are likely from Gail, but too much dependence on a single client is a potential downside risk to earnings, as the existing order book is poor. Thus, lower visibility on revenues will not allow the multiple to expand.