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TV18: Beyond business! - Views on News from Equitymaster

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TV18: Beyond business!
Aug 22, 2006

The Indian entertainment and media industry has out-performed the Indian economy and is one of the fastest growing sectors in India. The sector, which was once constrained by government regulations, is now undergoing some major changes. These include changes in govt policy, technology, consumer profile and many more. Not only this, the impact of all these changes is being witnessed on the major players present in this sector. TV18, the premier provider of business content in the country is one such player who is further planning to diversify its business by entering into global joint ventures and acquisitions. Here is an analysis of the company’s past, its current status and future growth prospects.

Company background
Television Eighteen (TV18) is India's premier business and consumer news broadcaster and a leading media content provider. The channel is a joint venture between CNBC Asia-Pacific and Television Eighteen India, with TV18 holding 90 % of the stake. Its 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 – in January 2005 and the more recent English general news channel, CNN-IBN (in partnership with Turner International), in December 2005. The company also owns the premier business news portal, moneycontrol.com and has another portal dedicated to commodities. Besides this, over the last decade, the company provided prime time television content to almost all leading satellite channels in India including BBC, Star Plus, Sony Entertainment Television, Zee, MTV and Discovery.

Key strengths
Dominance in business broadcasting: TV 18 is the leading player in the financial and business-news broadcasting segment. The company broadcasts 24 hr round-the-clock news channels and deploys content across multiple platforms like television, internet, mobile and voice, which offer the company a strong leverage. As per the graph below, CNBC TV18 clearly leads rival channels like NDTV and Headlines Today (3QFY06). Company’s dominance stemmed from the fact that until a short time ago, it was the only channel that was completely dedicated to business news. Other channels like Star news did offer business news but that remained a part of the general news channel. Besides this, its tie-up with CNBC Asia-Pacific, a global leader in the business segment is also a big positive. On the competition front, a rival channel has come out with a 24 hr channel dedicated only to business news but so far has not been able to make significant dents in TV-18’s market share.

Wider content coverage: Over the past few years the company has widened its coverage to include features, events, industry coverage, interviews with leading minds and fine arts. Its stock market coverage has also been expanded. The widening of the content coverage is reflected in the revenues of the company. Further, the company also sees increased demand for Indian business and general news content form Indians living overseas, who are now showing a keen interest in economic developments taking place in India. Beside this the company is now also targeting other areas of general news. Moving ahead with this idea, the company acquired 50% stake in Channel-7, a general news channel in Hindi thereby leading to greater coverage.

Analysis of the past…
Growth in revenues: If we peep into the past then we will find that in FY03, the total revenues were Rs 298 m, which had increased to Rs 1520 m by FY06, translating into a CAGR of 72%. The company’s major revenues come from the business news, which accounted for 90% of total revenues during FY06 and comprise advertisement revenue, programme revenue and subscription revenue. These have increased by 66% CAGR between FY03 and FY06. It should be remembered that between FY03 and FY06, the Indian stock market went through its best phase ever and this resulted in a lot of viewers getting attracted towards business news. TV18 by virtue of being the only 24 hr business news channel in the country was able to reap the benefit of such a trend. Going forward, unless the company takes efforts to diversify its revenue base, the topline growth is unlikely to sustain itself.

On the margins front, the company has been able to take advantage of the operating leverage and thus increase its operating margins from the FY04 levels. Net profit margins however have come under pressure during FY06 on account of higher interest costs and tax outgo to the tune of Rs 126 m. It should be remembered that tax outgo for the previous year stood at a negative Rs 6 m and hence this played a major role in restricting the bottomline growth of the company.

As far as the future plans are concerned, the company is taking steps to diversify its revenue base and not restrict itself to just business news. To this effect, it has entered into a JV with Asia’s leading e-recruitment provider jobstreet.com for job search facility. It is also to launch soon a portal called Yatra.in, touted to be India’s first integrated online travel service company, a brainchild of TV18 and Norwest Venture Partners.

  FY03 FY04 FY05 FY06
Net sales(Rs m) 298 537 984 1520
% growth   80% 83% 54%
PAT -13 116 329 372
%growth   -992% 184% 13%
Profitability ratios
EBITDA margins (%) -4% 31% 45% 46%
EBIT margins (%) -5% 29% 39% 41%
Net profit margin(%) -4% 22% 33% 25%

What to expect?
At the current price of Rs 645 the stock is trading at a lofty price to earnings multiple of 36 times its FY06 earnings. Although the company’s efforts at diversifying its revenue base are commendable, we believe the valuations fully factor in the growth prospects over the medium term and as such the risk is on the higher side.

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