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NDTV share price has plunged 20% and hit the lower circuit on BSE amidst heavy quarterly losses. Yet the company continues to heap lavish remuneration to its top management at the expense of shareholders
NDTV reported net a loss of Rs18.88 crore, for the June 2013 quarter, which is nearly equal to its entire loss of Rs20.34 crore incurred during the 2012-13 fiscal. On a consolidated basis, the company has made a net loss of Rs24.04 crore in first quarter, which is nearly as bad as the Rs26.09 crore net loss for the same period a year ago. Yet, NDTV doled out an excess of Rs24.50 lakh (in managerial remuneration during the June 2013 quarter alone) which is beyond stipulated limits, as per the law. During FY2013, NDTV paid top executives Rs1.68 crore. On Tuesday, NDTV hit its lower circuit (20% down) and was locked at Rs74.8 on the BSE.
In its report, PricewaterhouseCoopers (PwC) auditors of NDTV stated, “We draw your attention to note2 to the Statement regarding managerial remuneration, in respect of subsidiaries, amounting to Rs24.50 lakh paid during the quarter ended 30 June 2013 (Rs167.71 lakh paid till 31 March 2013) in excess of the limits specified in Schedule XIII of the Companies Act, 1956, which is subject to the approval of the central government. In the event that the central government approvals are not received, the aforesaid amounts are to be refunded by such directors. Had these amounts been recognised as recoverable from the director(s), the loss after taxation for the quarter would have been Rs22.12 lakh and loss per share for the quarter would have been Rs3.43.”
The company has reported operating losses in four of the last six quarters. Similarly, year-on-year (y-o-y) quarterly net sales fell in five of the last six quarters. At the same time, NDTV reported a net loss in four of the last six quarters.
Sanjay Dutt of Quantum Securities, and a long-term shareholder of NDTV, has pointed out that while public shareholders have made no money, the promoters and directors pay themselves lavishly. As recently as 12 July 2013, NDTV sought central government’s permission under Sec 640B, for enhanced remuneration to directors, even though there are no profits from operations, nor have taxes paid for many years. Dutt further stated that NDTV’s executive management, a small group close to the promoters, which includes journalists, law firms, tax advisers and consultants, has enjoyed first class business travel, hefty remuneration, ex-gratia bonuses etc, adding up to a massive Rs320 crore over four years (plus ESOPS), even as the company has made losses, failed to pay dividends and has not paid taxes.
Sanjay Dutt alleges that company allegedly broke rules. He said that Prannoy Roy received irregular promoter funding of Rs375 crore by pledging NDTV shares which, according to him, is against the rules. The Moneylife exclusive can be accessed here:
As a result, NDTV has threatened to sue Quantum Securities
This isn’t the first time that NDTV’s top management has shafted its shareholders to fund their lavish lifestyle. The company has been running a flawed business model for years and Moneylife wrote a piece way back in 2010, noting that the company was headed towards losses (Once a glamour stock, NDTV headed for sickness?). The company has been losing viewership and its ratings have gone down due to intense competition in the media industry.
Investors are worried that rising power availability could impact sale of back-up power genset. In this context, the drop in power deficit especially in South India does lead to some slowdown concerns for Cummins India’s power gen segment, says Nomura
Cummins India displayed a strong hold on margins during times of revenue decline (similar to the downturn in 2009) in its quarterly performance for first quarter of FY14 and this will be seen as a key positive. On the negative side, the investors would start getting increasingly worried on the top-line decline. Even recent management commentary of Kirloskar Oil Engines on power genset sales for FY14 has not been encouraging, says Nomura Financial Advisory and Securities (India) Pvt Ltd in a report.
“In fact, sales (for Cummins India) declined 17%, which was the worst in the last 12 quarters. However, year-on-year decline in employee expense as well as other expenses provided support to the margins. As a result, miss on EBITDA by 17% was largely led by miss on the topline. Other income +74% y-y boosted net profitability and made up for the weak operating performance,” Nomura said. The first quarter performance of Cummins India is given in the table below:
According to Nomura, investors are worried that rising power availability could affect sale of its back-up power genset. In this context, the drop in power deficit especially in South India does lead to some slowdown concerns for Cummins India’s power gen segment. However, an analysis of CEA data reveals that the sharp drop in power deficit in June 2013 was not on account of higher power availability but because of a sharp drop in demand for power. In Nomura’s view, the demand was impacted by seasonality (above average rainfall) as well as low demand for power on the back of a weak economic environment. In fact, availability of power on an All India basis as well as in South India has remained flat compared with same period last year.
The increase in diesel prices will increase the operating cost of gensets and could impact the demand in small HP segment in the shorter terms, as demand is more price elastic, points out Nomura. However, gensets in MHP and HHP segments are used in industrial where we believe the demand is relatively inelastic as these gensets are used for critical applications.
Nomura sees Cummins India as a fundamentally strong company with its long-term competitive advantages in the business. But given the worsening of the macro environment with tightening of credit availability in the market by RBI, sharp depreciation of the rupee, no clear timelines for implementation of CPCB norms, we believe the confidence on near-term earnings has reduced. As a result, we have lowered our valuation multiple from 18x to 16x (mid cycle multiple). With the cut in the multiple along with downward revision in the earnings (2% over FY14-FY15F) Nomura’s target price has been cut to Rs434/share from Rs496/share previously. Nomura maintains its Neutral rating on the stock.
Nomura’s valuation is based on the following estimates:
In the long run, Nomura believes that India’s industrial sector offers the unfolding of a substantial opportunity including opportunities in niche segments.
Why propose a 15% FPO (follow-on equity offering)? – Power Grid does not require equity infusion and yet announced an FPO citing margin of safety, growing investment avenues as prime considerations
Power Grid Corporation of India (PWGR) still does not require equity issuance to execute its base-case business plans and yet has announced a follow-on public offering (FPO). The company management attributed the 15% FPO to growing investment opportunities and margin of safety that it needed. The management expects to conclude the FPO within CY13, subject to the government’s views on the quantum of issuance and its decision to simultaneously divest part of its holding in the company, says Nomura Financial Advisory and Securities (India) Pvt Ltd in a note.
In the past few weeks PWGR has won a bid-based project (taking the tally to three), has inked a MoU with the Railways for a nationwide transmission/ traction project, and has garnered visibility on a chunk of the ‘Green Transmission Corridor’ project coming its way (Figure below).
Potentially in FY14, there is a risk of assets capitalized having equity contribution below the 30% threshold. Hence, the company management stated that the margin of safety is low, which is not a preferred situation. Even though the lenders have not asked for equity infusion, the company has proposed an FPO of 15%.
According to Nomura, this would provide reasonable financial flexibility. “Should the equity raised be lower (vs. its base case), the company management stated it would still have enough financial comfort as the capex-capitalization gap narrows going ahead,” Nomura said.
Nomura said it expects that funds raised (through the FPO) would generate returns above its cost of equity (12%-13%). The impact of proposed equity offering in FY14 on Nomura’s forecast EPS/BVPS is given in the table below:
Nomura has given a ‘Buy’ recommendation with a target price of Rs142.