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ZEEL (Z IN: NEUTRAL, TP: Rs. 140, CMP: Rs 135) reported good set of Q4FY11 numbers better than our and consensus numbers. The key takeaways of the results and conference call are:

·         Strong advertising revenue growth on account of sports programming: ZEEL's advertising revenues grew by 36% YoY. The numbers were much better than our expectations on account of strong realization from sports programming. We estimate that advertising revenues were higher by ~Rs 500mn on account of higher than expected realization from cricket programming (India-South Africa series, one-day and T20 programming). We also see that advertising revenues were strong on account of special programming of ZEE Cine awards which had attracted strong GRPs. Thus, after adjusting for these events, advertising revenues were still higher than our expectations. 

·         Subscription revenues were also aided by sports programming but growth will revert back to normalized rates: ZEEL's subscription revenue growth has surprised positively and grew by 10% QoQ. This was also helped by strong subscription revenues on account of cricket channel Ten sports. We see the sharp rise as a one time event on account of new channel and henceforth subscription revenue rise from current levels will be at normalized rate.

·         Losses from sports properties for FY12 estimated at Rs 0.8-1bn: The management has indicated that losses from sports programming in FY12 will be lower than FY11. In FY11 losses were to the tune of Rs 1.35bn. This can potentially improve the EPS by Rs 0.25 from FY11 levels.

·         Costs structure rise cycle yet to play out completely: The management has indicated that they have not significantly increased programming hours in Q4FY11 on account of sports season but will increase from Q2FY13 after the ongoing IPL season. Meanwhile we note that competition has increased programming hours significantly.  

Estimates and price revision, maintain Neutral: We have raised our estimates taking into account higher than expected advertising revenues. The management expects advertising revenues to grow by 12-14% (ex sports) in FY12. Our estimates build in a higher growth. Our EPS estimates for FY12E move up 5% and hence our one-year forward DCF based target price moves up to Rs 140 from current Rs 123 (April-2011).  We do not see material upside from current levels but do see incremental risks on account of competitive activity. We maintain our recommendation at Neutral.  

Lupin (LPC IN, BUY, PT Rs 491, CMP Rs 408) recalls Perindopril tablets from the US-Media reports (Economic Times): Second recall for Lupin in the last three months from the US market

News

·         According to Economic Times, Lupin has recalled all lots of Perindopril tablets from the US market on April 8 2011.

·         The Economic Times information is based on the data available on the US drug wholesaler Morris & Dickson's website. Reason for the recall is stated as "not meeting specifications overtime"

·         The report says that Lupin has denied the recall.

·         Perindopril is a cholesterol lowering drug and also to treat hypertension and congestive heart failure

Analysis

·         It would be difficult to compute the financial impact of this recall as the contribution of Perindopril to Lupin's US sales is not known.

·         While recalls are a common feature in the US market, this is the second recall in the last three months for Lupin

·         In February this year, Lupin recalled a small batch of 14,256 bottles of Lisinopril 30mg tablets from the US due to adulterated presence of foreign tablets. The recall was a Class II recall which is unlikely to invite any major action by the US FDA

HSIL eyes Acquisition up to ~Rs 4 Bn in sanitary ware & bath fitting

»   Hindustan Sanitaryware (HSIL) is the market leader of India's sanitary ware industry with a significant market share of over 40% in the industry. The Hindware brand markets bathroom furniture and is made available by over 1,400 direct dealers and 12,000 sub dealers.

»   HSIL is also the market leader in container glass in South India and enjoys 70% market share in that geography and is the second largest market player nationally. The company has five manufacturing facilities in India across Andhra Pradesh, Haryana and Rajasthan.

»   Hindware has expanded its product portfolio to include ceramic tiles with the recent launch of the Hindware Italian collection. The company presently sources the tiles from manufacturing hubs across the world, but later, it intends to acquire an existing facility or set up a greenfield unit.

»   The company is ramping up production capacity of its sanitary products facility in Andhra Pradesh from the present 2.8 million pieces to 4.2 million a year by December 2011. Further, the company will expand capacity of the Rajasthan tap manufacturing unit (acquired as part of electrical goods maker Havells India's bathroom accessories and fittings, under the label of Crabtree). For this, the company has planned capex of ~Rs 200crore for doubling this capacity within 18 to 24 months and this will provide the company a connection to its bathroom accessories business.

»   The company is in the process of doubling its exports within the next 18 months by getting into new markets. Currently, exports constitute 5% of its turnover, with the major markets located in the UK, Australia and Africa.

»   HSIL is in the process of significant business expansion, through expanding existing capacities in addition to setting up new capacities. HSIL has significant expansion plans of Rs`650crore over the next few years. The Container Glass expansion will absorb Rs 350crore to increase capacity from 1050MTD to 1500MTD; Sanitaryware capacity expansion will increase production from 2.8 million pieces to 5 million pieces per year, with an investment of Rs 200crore; Chrome plated fittings will absorb Rs 100crore to establish production of 2.5 million pieces per year.

»   At CMP Rs 150 stock trades at 15xFY10 and 12.3xFY11E earnings.