1

SYNOPSIS

We initiated Coverage of Sandesh

Ltd and set a target Price of

Rs.316.00 for Medium Term

investment.

Sandesh started its journey in the

world of Journalism in 1923.

Sandesh was a single edition

newspaper published from

Ahmedabad.

During the quarter ended, the

robust growth of Net Profit is

increased by 139.09% Rs.83.13

million.

Sandesh Ltd has declared Final

Dividend @40% (Rs. 4.00 per share)

on paid up equity share capital of

the Company subject to approval of

the members.

Net Sales and PAT of the company

are expected to grow at a CAGR of

6% and 12% over 2010 to 2013E

respectively.

Years Net sales EBITDA PAT EPS P/E

FY 11 2333.38 765.59 439.04 51.45 5.44

FY 12E 2520.05 819.58 479.26 56.16 4.99

FY 13E 2721.65 893.63 521.49 61.11 4.58

Stock Data:

Sector: Publishing

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 331.00/177.00

Volume (2 wk. Avg.) 460.00

BSE Code 526725

Market Cap (Rs in mn) 2389.52

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX SANDESH LTD

C.M.P: Rs. 280.00 Target Price: Rs. 316.00 Date: June 13th 2011 BUY

Sandesh Ltd Result Update: Q4 FY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Sandesh Ltd 280.00 2389.52 51.47 5.44 0.79 30.00

HT Media Ltd 160.75 37779.60 7.56 21.26 3.18 18.00

Navneet Publications 64.85 15448.20 3.28 19.77 4.08 50.00

Jagran Prakashan Ltd 122.15 38647.90 6.51 18.76 4.70 175.00

Investment Highlights

Q4 FY11 Results Update

Sandesh Ltd has posted net profit of Rs.83.13 million for the quarter ended on

March 31, 2011 as against Rs.34.77 million in the same quarter last year, an

increase of 139.09%. It has reported net sales of Rs.616.04 million for the quarter

ended on March 31, 2011 as against Rs.687.71 million in the same quarter last

year, a decline of 10.42%. Total income declined by 5.92% to Rs.651.58 million

from Rs.692.57 million in the same quarter last year. During the quarter, it

reported earnings of Rs9.74 a share.

Quarterly Results - Standalone (Rs in mn)

As At Mar-11 Mar-10 %change

Net sales 616.04 687.71 (10.42)%

PAT 83.13 34.77 139.09%

Basic EPS 9.74 4.07 139.09%

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Break up of Expenditure

Board recommends final Dividend

Sandesh Ltd has considered and passed the resolutions with respect to the

declaration of Final Dividend @40% (Rs. 4.00 per share) on paid up equity share

capital of the Company subject to approval of the members.

Company Profile

Sandesh started its journey in the world of Journalism in 1923. Since than it has

flourished into 5 editions and has played a critical and vital role in the upliftment and

welfare of five crore Gujaratis. It covers the latest news and deals with the day to day

situation with equanimity and fare judgment. Sandesh provides information and

entertainment through its supplements dealing with almost all the subjects.

The Sandesh Limited is a listed and public limited company with Head Quarter at

Ahmedabad. Till 1984, Sandesh was a single edition newspaper published from

Ahmedabad. Then under expansion programme new editions were launched Baroda,

Surat, Rajkot & Bhavnagar in 1985, 1989, 1990 and 1998 respectively.

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Initially in 1923 Shri Nandlal Bodiwala started Sandesh daily on a small scale, But in

1958 when late Shri Chimanbhai Patel was at the helm of affairs; his vision, foresight

and business acuemenship changed the destiny of Sandesh and its circulation began

to increase by leaps and bounds. His unique contribution was ‘Sunday Sanskar Poorti’

in Gujarati journalism, which included many celebrities as columnists. Thus he was

the pioneer of Sunday Supplements in Gujarati journalism. He was always in search

of new talents and new ideas to make Sandesh a unique and dynamic daily. It was

this missionary zeal that made Sandesh a household name in Gujarat.

Present CMD and the Editor of Sandesh Shri Falgunbhai Patel joined the organization

in 1979 after completing his MBA in USA. His close collaboration with his father made

a rare combination of wide experience and youthful dynamism that added a rare spirit

of adventure and calculated business viewpoint in the development of Sandesh as a

giant entity. The company went public in 1994 with a premium of Rs.90/- on the face

value of Rs. 10/- per share. The issue was oversubscribed by 15 times. “The Sandesh

Limited” thus became the first media house to become a public limited company.

But destiny sometimes plays cruel game and in March 1995 Shri Chimanbhai Patel

succumbed to a massive heart attack and Falgunbhai lost his best friend, philosopher

and guide in the person of his beloved father. It was a sad sorrowful day for the entire

Sandesh Pariwar. Since his father’s demise, Falgunbhai had to shoulder additional

responsibilities of editorial section in addition to his managerial duties. He took all the

challenges with the help of his professional assistants with great skill and

acuemenship.

Sandesh is selected by leading organizations all over India to advertise their products

and services. There is hardly any brand / services available in Gujarat which is not

advertised in Sandesh.

Services:

Jobs

Gujarat Lexicon

Sandesh Lokkosh

Matrimonial

Gujarat Calendar

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Sandesh on mobile

Money Transfer

Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 2254.16 2333.38 2520.05 2721.65

Other Income 26.07 139.24 151.77 166.95

Total Income 2280.23 2472.62 2671.82 2888.60

Expenditure -1627.97 -1707.03 -1852.24 -1994.97

Operating Profit 652.26 765.59 819.58 893.63

Interest -41.35 -70.65 -79.13 -87.04

Gross profit 610.91 694.94 740.46 806.59

Depreciation -54.23 -69.28 -74.82 -82.30

Profit Before Tax 556.68 625.66 665.63 724.29

Tax -186.36 -186.62 -186.38 -202.80

Profit After Tax 370.32 439.04 479.26 521.49

Equity capital 85.34 85.34 85.34 85.34

Reserves 2483.85 2883.11 3362.37 3883.85

Face value 10.00 10.00 10.00 10.00

EPS 43.39 51.45 56.16 61.11

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Sep-10 31-Dec-10 31-Mar-11 30-Jun-11E

Description 3m 3m 3m 3m

Net sales 522.16 674.58 616.04 566.76

Other income 32.51 57.38 35.54 38.74

Total Income 554.67 731.96 651.58 605.50

Expenditure -372.92 -470.01 -498.96 -408.06

Operating profit 181.75 261.95 152.62 197.43

Interest -17.06 -22.24 -23.24 -25.10

Gross profit 164.69 239.71 129.38 172.33

Depreciation -18.37 -16.16 -18.03 -19.11

Profit Before Tax 146.32 223.55 111.35 153.22

Tax -38.13 -73.33 -28.22 -42.90

Profit After Tax 108.19 150.22 83.13 110.32

Equity capital 85.34 85.34 85.34 85.34

Face value 10.00 10.00 10.00 10.00

EPS 12.68 17.60 9.74 12.93

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

EBITDA Margin (%) 28.94% 32.81% 32.52% 32.83%

PBT Margin (%) 24.70% 26.81% 26.41% 26.61%

PAT Margin (%) 16.43% 18.82% 19.02% 19.16%

P/E Ratio (x) 6.45 5.44 4.99 4.58

ROE (%) 14.41% 14.79% 13.90% 13.14%

ROCE (%) 25.09% 25.87% 24.05% 22.94%

Debt Equity Ratio 0.10 0.09 0.08 0.07

EV/EBITDA (x) 3.66 3.12 2.92 2.67

Book Value (Rs.) 301.05 347.84 404.00 465.10

P/BV 0.93 0.80 0.69 0.60

Charts:

Net Sales & PAT

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P/E Ratio(x)

Debt Equity Ratio

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EV/EBITDA(x)

P/BV

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Outlook and Conclusion

At the current market price of Rs.280.00, the stock is trading at 4.99 x FY12E

and 4.58 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.56.16 and Rs.61.11 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 6% and

12% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 2.92 x for FY12E and 2.67 x for

FY13E.

Price to Book Value of the stock is expected to be at 0.69 x and 0.60 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.316.00 for Medium to Long term investment.

Industry Overview

Media and Entertainment (M&E) is one of the fastest growing sectors in India. The

sector consists of creation, aggregation and distribution of content, products and

services, news and information, advertising and entertainment through various

channels and platforms.

The industry is taking initiatives like regional content and distribution platforms

(digital, non-digital and mobile) to enhance customer experience as well as monetize

content. New technologies such as 3G, broadband and mobile infrastructure are also

helping in propelling the growth rate.

The Indian economy grew at a faster pace in 2010 compared to 2009, which translated

into more advertising as well consumer spending. This high growth rate will continue

to remain in 2011 as well. The Indian advertising industry will grow by 17 per cent in

calendar year 2011 and is expected to add about US$ 889 million to the existing ad

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pie worth US$ 5248 million, according to Pitch Madison Media Advertising Outlook

2011. This robust growth in advertising industry will benefit the M&E industry in

2011 as well.

The entertainment industry in India is estimated at about US$ 9.4 billion in revenues

in year 2010, which is expected to grow at a rate of 14.1 per cent to reach revenues of

US$ 10.7 billion in 2011.

Cinema

India is the largest film producing market in the world with over 1,000 films released

every year and 3.7 billion tickets sold annually.

The Indian film industry is set to top revenues of US$ 3.3 billion by 2010 as it rides

new technologies and a booming economy set to expand at the rate of 18 percent per

year. It is also one of the largest employment sectors in the country. The government

of India gave the motion picture industry the status of an industry in 2001, making it

easier for film producers to obtain institutional financing.

According to PwC, the industry is projected to grow at a CAGR of 12.4 per cent,

reaching US$ 3.65 billion in 2014 from US$ 2.03 billion in 2009.

Advertising

The Indian advertising industry will grow at 17 per cent to clock US$ 6136.2 million in

2011, reported by Pitch Madison Media Advertising Outlook 2011.

The print media generated advertising revenue of US$ 2.2 billion, growing at 28 per

cent compared to 2010; while television advertising generated US$ 2.34 billion,

grabbing the biggest share of 44.5 per cent of the entire advertising pie. The Out Of

Home (OOH) advertising medium grew by 27 per cent in 2010, commanding US$ 320

million of the total ad spends. Radio advertising too has grown by 30 per cent to

become a US$ 199 million industry.

Internet penetration in India reached an all time high with 50 million plus connections

in 2010. As per Internet and Mobile Association of India (IAMAI), the total Online

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Advertising market of India is estimated at US$174 million for the year FY2009-10 and

is expected to grow to US$220 million in year FY2010-11. The internet market is

currently dominated by display ads and is expected to remain so for the next year.

Total Display advertising market of India in year 2009-10 is estimated at US$ 92.5

million and is expected to grow by 28 per cent to reach US$ 118 million in year 2010-

11. Total text advertising market of India in year 2009-10 is estimated at US$ 81

million and is expected to grow by 25 per cent to reach US$ 102 million in year 2010-

11. Banking, Financial Services and Insurance (BFSI), Travel and Online Publishers -

the top three text advertisers of FY 10 are expected to continue to lead text based

advertisers in FY11 as well.

Digital Media

The Information and Broadcasting (I&B) Ministry has accepted a proposal by Telecom

Regulatory Authority of India (TRAI) to make broadcasting operations completely

digital. The timeline decided for closing the analog cable distribution has been decided

for March 2015. A report by ICRA states that the industry requires an investment of

US$ 3.37 billion to go for the digital system.

India is the third biggest Internet market, with over 100 million internet user base and

the amount of time spent on the Internet for an average user in the country is 16

hours a week. According to Google estimates, 40 million users access Internet through

mobile phones and download 30 million applications.

Print and Publishing

The newspaper market in India has grown at 13 per cent compound annual growth

rate (CAGR) over the last five years to US$ 3.9 billion in 2010 will continue on its

growth trajectory at an estimated CAGR of around 12 per cent between 2010 and 2013

to reach US$ 5.9 billion in 2013, according to Ernst & Young India,.

As per the Indian Readership Survey (IRS) for the third quarter of 2010, conducted

jointly by the Media Research Users Council (MRUC) along with research firm Hansa

Research Group Pvt Ltd, Dainik Jagran, published by Jagran Prakashan, continues to

be the most preferred newspaper in the country..

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Amar Ujala, which launched an NCR edition in February 2011, is the No 4 newspaper

according to IRS Q4, 2010. It has lost a marginal 125 thousand readers and its total

readership is down from 29.7 million to 29.6 million. The No 1 Bengali daily,

Anandabazar Patrika is at No 10. The Times of India, India's No 1 English daily,

continues to be at No 11 with a total readership of 13.8 million. It had gained 114

thousand readers in Q3, 2010, while in the Q4, it has added 204 thousand readers.

In Mumbai, the average issue readership (AIR) has grown from 6,06,000 to 6,27,000.

Total Readership (TR) across all Hindustran Times editions have risen from 63,33,000

to 64,57,000. In Mumbai, the TR figures have increased to 9,73,000 from 9,43,000 in

Q3.

Foreign investment, including foreign direct investments (FDI) and investment by non-

resident Indians (NRIs)/person of Indian origin (PIO)/foreign institutional investor

(FII), up to 26 per cent, is permitted for publishing of newspapers and periodicals

dealing with news and current affairs under the Government route.

FDI policy for publication of Indian editions of foreign magazines dealing with news

and current affairs is:

• Foreign investment, including FDI and investment by NRIs/PIOs/FII, up to 26

per cent, is permitted under the Government route.

• 'Magazine', for the purpose of these guidelines, will be defined as a periodical

publication, brought out on non-daily basis, containing public news or

comments on public news.

• Foreign investment would also be subject to the Guidelines for Publication of

Indian editions of foreign magazines dealing with news and current affairs

issued by the Ministry of Information and Broadcasting (I&B) on

Publishing/printing of Scientific and Technical Magazines/specialty journals/

periodicals 100 per cent FDI is permitted under the Government route.

Publication of facsimile edition of foreign newspapers:

• FDI up to 100 per cent is permitted under Government route in publication of

facsimile edition of foreign newspapers provided the FDI is by the owner of the

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original foreign newspapers whose facsimile edition is proposed to be brought

out in India

• Publication of facsimile edition of foreign newspapers can be undertaken only

by an entity incorporated or registered in India under the provisions of the

Companies Act, 1956

• Publication of facsimile edition of foreign newspaper would also be subject to

the Guidelines for publication of newspapers and periodicals dealing with news

and current affairs and publication of facsimile edition of foreign newspapers

issued by Ministry of Information & Broadcasting on 31.3.2006, as amended

from time to time.

Government Policies

The Ministry of Information and Broadcasting (MIB) has set up a committee to assess

the current rating system for television rating points (TRP) of TV programs and has

expressed concern over this current system of evaluation. The MIB has recommended

increasing the sample size and switching to a more scientific approach for accurate

data.

It has also proposed an increase in the sample size from 8,000 homes to 15,000 urban

and rural households over a period of two years. It further recommends that this

figure should increase to 30,000 over the next three years, covering urban areas, rural

areas and small towns as well as Jammu and Kashmir and the North-Eastern States,

to provide complete geographical coverage of the country.

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_____________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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