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NDTV: The struggle continues… - Views on News from Equitymaster

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NDTV: The struggle continues…

Apr 21, 2006

Performance Summary
NDTV, one of the leading news broadcasters in the country, announced its 4QFY06 results a few days back. The results have been mixed considering that the company has reported robust topline growth for the quarter and the full year ended March 2006, while pressure on operating margins has led to losses for the fiscal. While the performance at the operating level has not been enthusing, the key reason for the company’s dismal bottomline performance has been the adjustments pertaining to employee stock options during the quarter and the year. The company has declared a final dividend of 20% (Rs 0.8 per share on face value of Rs 4 per share) for FY06.

Financial performance (Consolidated): A snapshot…
(Rs m) 4QFY05 4QFY06 Change FY05 FY06 Change
Net Sales 489 699 43.2% 1,761 2,210 25.5%
Expenditure 340 525 54.2% 1,234 1,783 44.5%
Operating Profit (EBDITA) 148 175 17.8% 527 427 -19.0%
EBITDA margin (%) 30.3% 25.0%   29.9% 19.3%  
Other income 8 5 -41.6% 37 29 -21.7%
Interest (0) -   6 0  
Depreciation 38 42 10.7% 129 156 20.4%
Profit before tax 119 138 15.8% 429 300 -30.1%
Extraordinary item - (90)   - (279)  
Tax 16 12 -23.0% 65 25 -61.8%
Profit after Tax/(Loss) before minority interest 103 36 -65.1% 365 (3)  
Minority Interest 3 16 529.9% 11 16 50.0%
Profit after Tax/(Loss) after minority interest 100 20 -80.0% 354 (20)  
Net profit margin (%) 21.1% 5.1%   20.7% -0.2%  
No. of Shares (m) 60.8 60.8   60.8 60.8  
Diluted earnings per share         (0.3)  

What is the company’s business?
NDTV is one of India’s leading broadcasters and producers of news and current affairs programmes. Since its inception in 1988, NDTV produced television news and current affairs programmes for various channels. However, in April 2003, the company simultaneously launched two news channels - NDTV 24X7 (English) and NDTV India (Hindi). Further, the company launched its business news channel – NDTV Profit in January 2005. NDTV had also filed an application with the Ministry of Information & Broadcasting (I&B) for permission to uplink its proposed new channel, on which there has been no reported progress as yet. Thus, the company’s primary business has changed from production of television software for other broadcasters a couple of years ago to television news broadcasting through its own channels.

What has driven performance in 4QFY06?
Robust topline growth: NDTV has maintained a healthy topline growth quarter after quarter. In 4QFY06, the topline of the company grew by 43% YoY, major chunk of which was contributed by advertisement revenues. This has seemingly come about owing to the fact that the company has consistently managed to induct new advertising clients into its business and advertisements have also remained strong with the economic activities being on an upswing. It must be noted that NDTV enjoys the numero uno position in the English news genre (NDTV 24X7) and a strong second position in the Hindi news segment with little gap between the market shares of the company’s channel, NDTV India and the leader, Aaj Tak. Further, the company’s business news channel, NDTV Profit, have also chipped in with its contribution.

(as % of net sales) 4QFY05 4QFY06 FY05 FY06
Transmission & production cost 17.6% 16.4% 17.5% 17.1%
Employee cost 27.9% 31.6% 30.2% 36.3%
Advt. & promotional expenses 7.7% 10.8% 6.0% 10.5%
Administrative expenses 16.6% 16.2% 16.4% 16.9%
Total 69.7% 75.0% 70.1% 80.7%

Margins under pressure: There has been no respite on the operating margins front with the same sliding by 530 basis points during the quarter, on a YoY basis. On a QoQ basis too, operating margins have contracted by 280 basis points. What has led to this deterioration in margins has been the rise in employee and marketing costs. These costs have increased by 51% and 120% YoY respectively and their impact on margins has been prominent owing to the fact that these two accounted for 58% of the company’s total operating expenditure. The rise in salary costs was seemingly on the back of higher-than-normal salary increments considering the talent-intensive nature of the industry. Apart from this, with increasing competition in the television news segment, the company has increased its spend on advertisement and promotional expenses.

At the brink: While the poor operational performance during the quarter undoubtedly had an adverse impact on the company’s bottomline performance, the extraordinary item i.e., cost of employee stock options to the tune of Rs 90 m, did ultimate damage to the numbers. Thus, for the quarter, the company reported a bottomline fall of 80% YoY and closed the fiscal with a net loss of Rs 20 m compared to a profit of Rs 354 m in FY05.

What to expect?
The stock is currently trading at Rs 261, while its EPS continues to be negative. Going forward, we believe that the company will deliver significantly improved numbers. This is considering the promising scenario for television news segment and the various initiatives taken by NDTV like making a couple of its channels paid, entering into a contract with Astro Broadcasting for providing content for news channels to be launched in South East Asia, distribution of its channels in the US and the UK (good for subscription revenues) and acquiring a stake in radio broadcasting business (RED FM). However, we continue to remain wary of the valuations of the stock at the current juncture as it continues to trade at over 20 times our estimated FY08 earnings.

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Mar 19, 2019 10:55 AM