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TV18: For Gen Next? - Views on News from Equitymaster
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TV18: For Gen Next?
Jul 26, 2005

Performance summary
TV18 announced its 1QFY06 results yesterday. While the topline of the company registered a splendid growth during the quarter, the bottomline failed to keep pace with this growth. While the operating margins held forte, it was a sharp increase in financial expenses that led to the pressure on net profit margins. Nonetheless, on an overall basis, the performance is commendable.

Consolidated snapshot…
(Rs m) 1QFY05 1QFY06 Change
Net Sales 169 266 57.1%
Expenditure 83 131 57.4%
Operating Profit (EBDITA) 86 135 56.7%
EBITDA margin (%) 51.0% 50.9%  
Interest 2 12 480.9%
Depreciation 13 30 140.4%
Profit before tax 72 94 30.4%
Extraordinary items (6) (10) 63.5%
Tax 3 4 12.9%
Profit after Tax/(Loss) 62 80 27.9%
Net profit margin (%) 36.8% 30.0%  
No. of Shares (m) 15.5 18.3  
Diluted earnings per share* 16.1 17.5  
Price to earnings ratio (x)   20.0  
(* 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, moneycontrol.com. Recently, it also acquired an agri informatics business portal – eagritrader.com.

What has driven performance in 1QFY06?
Topline mirrors the Index:  TV18 reported a strong 57% YoY growth in topline, as the company continues to reap the advantage of high viewership. It must be noted that the company’s CNBC-TV18 channel continues to remain the leading business news channel in the country. Since 97% of revenues are contributed by advertisements, it remains the key growth driver for the company. Ad revenues witnessed a 55% YoY rise during the quarter primarily aided by the booming stockmarkets, as more and more viewers log onto business news channels. This, in turn, increases the bargaining power of the broadcasters while negotiating with advertisers, which is reflected in the strong growth in ad revenues.

The company’s Hindi consumer channel (Awaaz), which was launched in January 2005, is also reportedly doing well. Though the channel continues to eat into the company’s profits, as per TV18’s press release, the revenues of Awaaz have trebled to Rs 25 m (about 10% of 1QFY06 revenues) compared to 4QFY05. This has been possible with a sharp 20% week-on-week growth in viewership for the last couple of months. However, the company has still some way to go before it achieves breakeven, considering that it continues to lose approximately Rs 40 m at the operational level.

It must be noted that despite this ad revenue growth, the share of ad revenues of the total pie fell by 160 basis points to below 97% as compared to over 98% in 1QFY05. This was owing to an even stronger growth in the entertainment/internet/software segment of the company, wherein revenues grew by 197%, albeit on a very small base. It must be noted that the company owns two business news portals, as mentioned above, which have seemingly contributed to the growth of this segment. Further, the company has also being hosting successful investor camps across the country, which has played its part. However, this business segment of the company is yet too small to be given much weightage.

Margins hold forte:  The company continues to enjoy operating margins of over 50% despite the competition having increased significantly over the last few quarters. 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 comes under pressure:  Despite a strong 57% growth in operating profits, the same did not trickle down to the bottomline owing to high financial expenses. While the interest component increased by 481% YoY, though on a smaller base, depreciation charges were higher by 140% YoY. This rise in the latter is apparently owing to the ongoing expansion by the company wherein a state of the art broadcasting facility was scheduled to become operational in 4QFY05. The bottomline, thus, was restricted to 28% YoY growth with net profit margins falling from about 37% in 1QFY05 to 30% in 1QFY06.

What to expect?
At Rs 349, the stock is trading at a price to earnings multiple of 13 times our estimated FY07 earnings. While the June quarter results have been below our expectations, we would not be making changes to our estimates, as we believe that the company would be able to meet our full year estimates. Further, considering the potential subscription revenues for the company by virtue of the fact that it reaches an estimated 20 m households (as per a 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 announced its plans of foraying into the General News space in collaboration with a strong team of professionals.


* NDTV 24X7

* NDTV 24X7 + NDTV Profit

However, investors need to keep a close watch on the competition being provided by the NDTV channels, which have already managed to dethrone CNBC-TV18 from the numero uno position, as a group. 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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