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TV18: No breaks… - Views on News from Equitymaster

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TV18: No breaks…

Jul 31, 2006

Performance summary
TV18, India’s premier news broadcaster and a leading media content provider, declared its 1QFY07 numbers. The company has reported a 55% YoY growth in topline for the quarter while the operating profits have increased by 57%. The bottomline growth has outpaced the topline growth and has increased by 62% YoY.

Consolidated snapshot…
(Rs m) 1QFY06 1QFY07 Change
Net Sales 269 416 54.6%
Expenditure 133 202 52.4%
Operating Profit (EBDITA) 136 214 56.7%
EBITDA margin (%) 50.7% 51.4%  
Interest 12 20 75.2%
Depreciation 27 35 30.1%
Profit before tax 98 159 61.8%
Extraordinary items (10) (16) 54.3%
Tax 4 2 -42.0%
Minority Interest 1 6  
Profit after Tax/(Loss) 83.3 135 61.8%
Net profit margin (%) 30.9% 32.4%  
PAT after ESOP 79.8 117.7  
No. of Shares (m) 18 21  
Diluted earnings per share*   27.3  
Price to earnings ratio (x)   22.6  
(* Twelve months trailing)

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 1QFY07?
Topline show continues: TV18 reported a strong 55% 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 87% of revenues are contributed by advertisements, it remains the key growth driver for the company. Ad revenues witnessed a 42% 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.

It must be noted that despite this ad revenue growth, the share of ad revenues in the total pie has gone down by 800 basis points to below 87% as compared to over 95% in 1QFY06. This was owing to an even stronger growth in the entertainment/internet/software segment of the company, wherein revenues grew by 335%. With the acquisition of stakes in Jobstreet.com and Yatra.in, the group is investing aggressively in the Internet space with the aim of leveraging its 70m strong television audience franchise, thereby leading to overall growth of this segment.

Revenue mix (consolidated)
  1QFY06 % share 1QFY07 % share Change
News 257 95.6% 365 87.6% 41.7%
Entertainment/Internet/Software 12 4.4% 52 12.4% 334.6%
Total 269 100.0% 416 100.0% 54.6%

Besides the above factors, there are some other factors, which also led to the topline growth. These factors include the recent re-launch of Channel 7 that has seen it emerge as a strong contender for leadership in the Hindi News space. Besides, TV18 has also embarked on an ambitious internet strategy that has seen it enter the online recruitment (Jobstreet.com), travel services (yatraonline.com) and Home Shopping space (both online and television). Over the next few months, TV18 will continue to consolidate its leadership in the television and internet space.

Margins Expansion: The company continues to enjoy operating margins of over 51% 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 back on track: Buoyed by a 57% jump in operating profits, bottomline has improved by 62% over 1QFY06. Although interest costs have been higher by 75%, they have not been able to impact the bottomline growth to a great extent. Depreciation costs have also grown at a lower rate than operating profits, thus positively impacting the bottomline.

What to expect?
At Rs 615, the stock is trading at a price to earnings multiple of 23 times its 1QFY07 earnings. Despite its efforts at diversifying its revenue sources, around 88% of the business still comes from its flagship news business news channel, which is vulnerable to any adverse movement in the Indian stock market. As such the valuation is on the higher side currently and we continue to maintain our ‘Sell’ view on the stock.

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