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GBN IPO : Our View
Jan 15, 2007

Global Broadcast News Ltd (GBN), one of the leading players in the Indian news broadcasting space has launched its initial public offering today. The company is putting on offer 4.2 m shares and the offer price is in the range of Rs 230 to Rs 250 per share. At the higher price level, the company will be collecting Rs 1.1bn from this IPO. The issue will close on January 18, 2007. Here is a brief analysis of the issue. We shall put up a detailed review shortly. Background
Global Broadcast News Ltd (GBN) commenced its operations in December 2005, with the launch of CNN-IBN channel in the English language news and current affairs space. The channel achieved leadership position within six months of its launch and currently enjoys a market share of 37.6%, compared to 35.4% of its nearest competitor NDTV 24X7 (Source: TAM Viewership Data). After cementing its presence in the English general news genre, GBN ventured into the Hindi news genre with the launch of IBN 7 (erstwhile Channel 7). GBN had earlier entered into a share-subscription cum shareholders agreement with the promoters of Jagran TV Pvt. Ltd. and acquired 49% stake in B K Fincap Pvt. Ltd., the holding company of Jagran TV, thus gaining control over Channel 7.

The company has an agreement with CNN for an exclusive, limited, non-transferable right to use and produce, inter alia, the CNN name and logo. It also has a news service agreement with Turner for production and broadcasting of revenues. In order to expand its reach, GBN has signed a Memorandum of Understanding (MoU) with Zee Turner Ltd (ZTL), which is engaged in the distribution of various satellite- based channels. As per the deal, ZTL is entitled to a commission of 20% for distributing GBN channels.

GBN is part of the Network 18 Group that owns and operates some of the leading business news channels in India (through TV18). As part of the group restructuring exercise, certain business portals of the group have been consolidated into Web 18 Holdings. As a part of the arrangement, GBN will hold 15% in Web 18.

Reasons to Apply

Experienced promoters: GBN is promoted by the Network 18 Group, which already has on air two well-established channels – CNBC TV18 and CNBC Awaaz. While CNBC TV18 is a leading English business news channel, CNBC Awaaz is a leading Hindi consumer and business news channel. Both the channels dominate the business news space with a combined market share of 61.8% (Source: TAM Viewership Data). A strong promoter background will not only enable GBN to take advantage of the parent’s expertise but also leverage on TV18’s marketing network.

Leadership position in English news genre: Since the launch in December 2005, CNN-IBN’s share in the English news genre has increased from 18.8% to 37.6% for the 5 weeks ended December 2, 2006 according to the TAM Viewership Data. Further, in this period, it had an average weekly reach of 11.2 m viewers and was available in 87.6% of the 68 m households in the country with access to cable and satellite. Also, since advertising spend follows viewership, GBN’s leadership position and wide reach is likely to attract a larger number of advertisers as well as increase its bargaining power with advertisers going forward. The implementation of CAS and increasing popularity of DTH will also be a big positive to the company since it will result in significant subscription revenues as the current structure of cable industry results in high leakage of revenues with cable operators under-declaring their subscriber bases to broadcasters of pay-TV channels.

Association with CNN and Turner: GBN entered into a brand license agreement with CNN in October 2005 for a period of ten years. As per the agreement, GBN has been granted an exclusive, limited, non-transferable right to use and reproduce the licensed material, which includes the CNN name and principal logo within India, Nepal, Sri Lanka and Bangladesh. This will enable GBN to leverage on CNN’s strong brand name for growth in these regions. The company has also entered into a news service agreement with Turner, wherein the parties have greed to assist each other in production and broadcasting services and creation of programme material in the above mentioned nations.

Venture into the Hindi news genre: As mentioned earlier, the company has entered the Hindi news genre with the re-launch of Jagran TV’s Channel 7 as IBN-7 (GBN bought a 49% stake in Jagran TV in June 2006). We are of the opinion that this association with GBN is likely to have a positive impact on IBN-7’s viewership. The same has been substantiated by the increase in the channel’s average weekly market share from 7.6% in the five-month period between January-June 2006 to 9.1% between June-December 2006. The Hindi news segment is significantly bigger as compared to the English news segment. According to the TAM Viewership Data, the average weekly reach of Hindi news channels in India for the 11 month period ended December 2, 2006 was 38.5 m as compared to 23.1 m viewers for English language news channels.

Reasons not to Apply

Commoditised business: News being non-proprietary and largely non-exclusive, results in the content being similar across news channels with key differentiating factors being editorial integrity and quality. Though GBN has endeavoured to differentiate its news channels by focusing on quality programming, it might not be able to adequately differentiate its channels on a continuous basis as the competition increases and industry grows. Consequently, this could adversely impact the viewership and thereby revenues of the company.

The company’s channels already face competition from existing players. While there are four players in the English news space – Times Now, Headlines Today, NDTV-24X7 and CNN-IBN, the Hindi news space is much more fragmented with the presence of Aaj Tak, Star News, Zee News, Sahara Samachar, NDTV India, India TV, Tez and Janmat. There have been instances in the past when established channels have lost significant market share to new entrants. For instance, Aaj Tak lost significant market share to NDTV India whereas NDTV 24X7 lost significant market share to CNN-IBN. Loss of market share and viewership to competitors can have a significant impact on the company’s profitability going forward.

Valuations and Comments
We have valued GBN on the price to sales parameter, as the company has not yet broken even. While the stock is being issued at roughly 10 times the company’s estimated FY07 earnings. On the other hand, NDTV and TV Today, which are already well established and profit making companies currently trade at 7.3 times and 3.4 times their trailing 12-month sales.

FY06 (Rs m) GBN TV Today NDTV TV18
Net Sales 59 1,596 2,210 1,520
Operating Expenses 477 1,075 1,785 840
EBDITA (418) 521 425 680
EBDITA margin - 32.6% 19.2% 44.7%
Profit after tax (465) 278 259* 372
Net profit margin - 17.4% 11.7% 24.5%
Market Cap** 6,675 5,643 18,810 31,800
*excluding employee stock expenses.** Price as of 12th January, 2006.

Considering that GBN has aggressively ramped up its presence in the commoditised English news genre in just 12 months from its launch in December 2005, we expect growth to start flowing into numbers from FY08 onwards. Our assumptions are primarily based on strong expected growth in advertising revenues. This is due to the fact that advertising revenues lag viewership by around 6 months. We are also positive on the company’s venture into the Hindi news genre through IBN –7. However, all these efforts will still take some time before they start making any meaningful contribution to the company’s profitability. As such, we advice high-risk and long-term investors to ‘APPLY’ to the issue. We would add a caveat to our recommendation – GBN is still a fledgling entity with growth yet not visible in its numbers. This heightens the risks to investment in the issue, and applicants should bear that in mind.

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