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TV18: In control

Apr 28, 2005

Performance Summary
TV18, India's premier news broadcaster and a leading media content provider, declared its 4QFY05 numbers just a short while ago. The company continues to dole out positive surprises on its financial performance front and has managed to maintain its lead in the increasingly competitive business news segment. For the quarter ended March 2005, the company has reported a bottomline growth of 90% on the back of an 87% surge in topline. Though operating margins have witnessed some pressure, the company has managed to sustain these at over 50% during the quarter and full year. For FY05, the bottomline has catapulted 135% on the back of an 80% growth in topline.

Consolidated snapshot…
(Rs m) 4QFY04 4QFY05 Change FY04 FY05 Change
Net Sales 171 320 86.7% 520 934 79.5%
Expenditure 83 157 88.8% 286 448 56.6%
Operating Profit (EBDITA) 88 163 84.6% 234 486 107.6%
EBITDA margin (%) 51.6% 51.0%   45.0% 52.0%  
Interest 3 12 362.0% 13 25 100.2%
Depreciation 15 31 108.8% 41 89 116.0%
Profit before tax 71 121 69.9% 180 372 106.3%
Extraordinary items (7) (14) 95.4% (35) (41)
Tax 11 6 -42.4% 11 16
Profit after Tax/(Loss) 53 100 90.0% 134 315 135.3%
Net profit margin (%) 30.8% 31.3%   25.7% 33.7%  
No. of Shares (m) 14.9 16.9   14.9 16.9  
Diluted earnings per share* 14.1 23.7   9.0 18.6  
Price to earnings ratio (x)   10.8     13.7  
(* annualised)            

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-TV 18. TV 18 holds a 90% stake in the channel with the balance with CNBC Asia, which is equally owned by NBC (owned by GE) and Dow Jones. TV 18 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 language consumer channel – Awaaz – on January 13, 2005. The company also owns the premier business news portal, Recently, it also acquired an agri informatics business portal –

What has driven performance in 4QFY05?
Revved up topline:  Despite the higher base during 4QFY04, TV18's topline has spurted by a handsome 87% during the final quarter of FY05. It must be noted that the company derives its revenues primarily from the news segment, which contributed nearly 97% to the company's topline in 4QFY05. Thus, it is the revenues from broadcasting related activities that dictates the company's performance. And it is the 85% growth in this segment that is reflected in the strong topline growth. Considering that the company's flagship channel 'CNBC-TV18' is available along with the Zee bouquet for which the latter has assured a 'minimum guarantee' to the former, much of the growth seems to have been contributed by the better use of ad inventory. With stockmarkets being in the limelight since the last few quarters, including 4QFY05, the channel has seemingly managed to rake in good moolah taking advantage of the increased viewership of business news channels. And this performance is indeed commendable considering the increasing competition in the business news segment in the country. Further, with its Hindi consumer channel – Awaaz – now being the fastest growing channel beating NDTV profit and Zee Business, contribution by this channel to the overall performance of the company cannot be ruled out.

Operating margins 50+:  It has been the fifth consecutive quarter that the company has managed to hold its operating margins over the 50% mark! Also, the company has ended the full year (FY05) with 52% operating margins. However, since the company does not provide a break-up of its operating expenditure heads, it would be difficult for us to comment on the same.

Bottomline on the run:  The key reason for the company managing a 90% growth in bottomline is it's strong topline growth and sustained operating margins. However, it must be noted that this growth in profits is despite the near quadrupling of interest outgo, more than doubling of depreciation expenses and an 84% growth in the company's sharing of revenue with CNBC. Though one could argue that these higher expenses have been on a smaller base, when looked at in the context of the size of the bottomline, these expenses do have a significant role to play.

What to expect?
At Rs 256, the stock is trading at 13.7 times its FY05 earnings. It must be noted that the company has beaten our estimates by a comfortable margin and we would soon be revisiting our numbers upwards. For the time being, our back of the envelope calculations reveals that the stock is valued at under 10 times our expected FY07 earnings, which is our buy limit. Further, considering the potential subscription revenues for the company by virtue of the fact that it reaches an estimated 20 m households (as per the company press release), the renewal of its 'minimum guarantee' agreement with Zee post FY06 could be a significant revenue booster for the company.

Other moves by the company like 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 further optimism regarding the company's performance going forward. Recently, the company has announced its plans of foraying into the General News space in collaboration with a strong team of professionals including Rajdeep Sardesai (of NDTV fame). However, investors need to keep a close watch on the competition being provided by the NDTV channels, which stand a good chance of dethroning CNBC-TV18 from its numero uno position with enhanced efforts. Also, while the performance of the company over the last few quarters has to be looked at in the backdrop of a booming stock market scenario, lacklustre activity on this front could prove to be a hitch for the company.

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