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TV18: In the news - Views on News from Equitymaster
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TV18: In the news
Jan 9, 2006

Performance summary
TV18, India’s premier news broadcaster and a leading media content provider, announced its 3QFY06 numbers just a short while ago. The company has continued its robust performance during the quarter by registering a strong 55% YoY growth in topline. With operating margins largely sustained at around 55%, the bottomline has grown by 47% YoY for the third quarter ended December 2005. Thus, at the end of three consecutive quarters of commendable performance in the current fiscal, for the nine-months ended December 2005, the bottomline growth has been a handsome 40% YoY on the back of a 55% YoY topline growth with operating margins improving by 130 basis points during this period.

Consolidated snapshot…
(Rs m) 3QFY05 3QFY06 Change 9mFY05 9mFY06 Change
Net Sales 246 381 54.9% 615 955 55.5%
Expenditure 111 173 56.0% 292 441 51.1%
Operating Profit (EBDITA) 135 208 54.0% 323 514 59.4%
EBITDA margin (%) 55.0% 54.7%   52.5% 53.8%  
Interest 7 21 188.2% 14 44 221.5%
Depreciation 29 48 64.9% 58 122 108.8%
Profit before tax 99 139 41.0% 251 349 39.1%
Extraordinary items (12) (13) 4.8% (26) (32) 20.4%
Tax 5 7 37.8% 10 17 75.3%
Profit after Tax/(Loss) 82 120 46.7% 214 300 39.7%
Net profit margin (%) 33.1% 31.4%   34.9% 31.4%  
No. of Shares (m) 16.8 21.0   16.8 21.0  
Diluted earnings per share* 19.4 22.7   17.0 19.0  
Price to earnings ratio (x)**         20.9  
(* annualised)            
** trailing 12 months

The business news leader
Television Eighteen (TV18) is India's premier business news broadcaster and a leading media content provider to the jointly branded channel – CNBC TV18. It provides a variety of content for television programming with its primary focus on delivering capital market and financial news. It's tie-up with CNBC Asia led to the launch of CNBC India, a 24-hour business news and information channel. Further, the company launched India’s first ever Hindi consumer channel – Awaaz – in January 2005 and the more recent English general news channel, CNN-IBN (in partnership with Turner International), in December 2005. The company also owns the premier business news portal, moneycontrol.com and has another portal dedicated to commodities.

What has driven performance in 3QFY06?
Cashing in on market sentiments: The Indian stockmarkets have been amongst the select few in the world which have managed to steal the attention of investors - big and small – across the globe owing to the strong bullrun it is currently witnessing. And, TV18’s flagship channel, CNBC-TV18, has been at the forefront (38% market share) in bringing all the market action to the investor/viewer. This is precisely what has been reflected in the strong topline growth of the company over the last few quarters, including 3QFY06. It must be noted that more 98% of the revenues during 3QFY06 (95% in 9mFY06) have been derived from its news channels in terms of advertising revenues, with the business channel contributing a major chunk of the topline.

* 3QFY06 = NDTV 24X7 + NDTV profit
Source: TV18 Inv. Update 3QFY06

However, it must be noted that Awaaz has been increasing its contribution in the overall scheme of things for the company with its topline contribution rising from Rs 25 m in 1QFY06 (9.4% of total revenues) to 55 m in 3QFY06 (14.4% of total revenues). As per the company’s press release, the channel is fast approaching break-even. Further, since CNN-IBN was launched only in the second half of December 2005, its contribution would not be significant.

As mentioned above, while 98% of the company’s topline comes from advertising, the balance is contributed by the company’s Internet (and other) forays (5% in 9mFY06). Though small, during the quarter, revenues from this grew four folds. It must also be noted here that during the quarter, the company has announced its entry into the subscription model on the Internet by launching www.poweryourtrade.com.

Margins sustain: The operating margins during the quarter have sustained at about the historic highs of 55% (see adjoining chart), though during the quarter under consideration, they were lower by 30 basis points. However, it must be noted that these high margins in the scenario of increased competition with other general/business channels, especially from the NDTV stable, see chart above) catching up with CNBC-TV18.

Bottomline a tad lower than topline: Despite the 55% YoY growth in topline, the company’s net profits have been capped at 47% YoY growth. This is owing to the sharp 188% rise in interest expenses and a 65% rise in depreciation charges. This saw the net profit margins slipping by 170 basis points during the quarter. For similar reasons, the bottomline growth during 9mFY06 (40%) has been slower than the topline growth (55%).

What to expect?
At Rs 420, the stock is trading at a price to earnings multiple of 16 times our estimated FY08 earnings. Considering the 9mFY06 performance of the company, we believe that the company is on track to meet our full year estimates and as such, we would not be making any major changes to our numbers.

Various moves by the company, such as the commencement of supply of content to a channel (South Asia World) focused on the NRI community in the US and the success of its Hindi channel (Awaaz) creates optimism regarding the company’s performance going forward. Further, the recent foray by the company into the general news space through the launch of CNN-IBN would help it diversify its offering to advertisers as well as consumers. This should also help the company in a way to reduce its dependence on CNBC-TV18, which is a business news channel and the fortunes of which are somewhat dependant on the performance of the stockmarkets. However, investors need to keep a close watch on the competition being provided by the NDTV channels, which, as a group, have already managed to dethrone CNBC-TV18 from the numero uno position.

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