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TV 18: Margin show

Aug 14, 2003

Television Eighteen (TV18), India’s premier business news broadcaster and a leading media content provider, posted good 1QFY04 numbers. While the topline of the company grew by a smart 26%, the bottomline registered a much higher growth of 179%. This could be attributed to the huge improvement in operating margins, which leapfrogged from 22% to 35% in the June quarter.

  Consolidated  
(Rs m) 1QFY03 1QFY04 Change
Net Sales 70 88 25.5%
Expenditure 55 57 4.0%
Operating Profit (EBDIT) 15 31 103.6%
Operating Profit Margin (%) 21.6% 35.0%  
Interest 7 2 -68.3%
Depreciation 7 7 -3.3%
Profit before Tax 0 21  
Extraordinary Items 6 -10  
Tax 3 -  
Profit after Tax/(Loss) 4 12 179.1%
Net profit margin (%) 5.9% 13.2%  
No. of Shares (m) 11.6 11.6  
Diluted Earnings per share*   4.0  
P/E ratio   29.5  
(* annualised)      

Before we analyse the results, it must be noted that as per the Indian government guidelines foreign stakeholding in news channels operating in India is capped at 26%. CNBC India having complied with it had restricted the parents (CNBC Asia) holding to 26%, which further reduced to a strategic 10% recently (shareholder approval awaited). However, even after the deal goes through, it will not have any material impact on the overall financial position of TV 18 as the 10% parent stake will be in the unlisted subsidiary of TV 18, to which the CNBC channel operations will be transferred to.

Revenue mix (consolidated)
  1QFY03 % Share 1QFY04 % Share % Change
News 65 92.7% 87 98.7% 33.6%
Entertainment 4 5.0% 0 0.1% -97.7%
Internet & software 2 2.3% 1 1.2% -34.6%
Total 70 100.0% 88 100.0%  

The company derives its revenues from three streams, as can be seen in the table above. However, apart from news (98.7%), the other two segments viz. Entertainment and the Internet presence, contributed a measly 1.3% to the company’s revenues, which is down from 7.3% in the corresponding period last year. On the news front, the company provides content to CNBC India and has shown a 34% increase YoY.

The company’s operating margins have registered a huge improvement YoY. This is a factor of a control on expenditure. The two heads under which the company classifies its expenses are the staff costs and other expenses. On both the fronts, the company has shown an improvement. While the staff costs have improved marginally from 30% of net sales to 29% YoY, the other expenditure component has reduced substantially from 48% of net sales to 36% in 1QFY04.

At Rs 118, the stock is trading at a P/E multiple of almost 29.5x its 1QFY04 annualised earnings. Though the company has registered a marked improvement in operating margins, the sustainability of such high margins over a longer term will be of question. However, TV18 is assured of a revenue stream from the sale of its content to CNBC India (90% holding). Also, as per the new arrangement with its parent, CNBC Asia, TV 18 has a definitive 15-year franchisee arrangement for CNBC brand (shareholder approval awaited). It must be noted here that CNBC India (now CNBC-TV18 combine) is one of the most watched business news channels. And as such, it seems that the impact of the implementation of CAS on CNBC, and thus TV18, will not be high as the CAS rollout is planned in the four metros in the initial stages and this is where the viewers of the channel are primarily based. With the absence of another full-fledged business news broadcaster, CNBC-TV18 combine has the upper edge in the market.


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