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NDTV: Lofty expectations! - Views on News from Equitymaster

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NDTV: Lofty expectations!
Aug 31, 2006

The Indian television media industry has been growing at a rapid clip over the past few years, led by changing consumer preferences and better programming content from service providers. NDTV, which is a leading new broadcaster in the country, has benefited from the overall growth in the industry. In this article, we analyse the company’s strengths and also its financial performance over the past few years.

Company background
NDTV founded in 1988 is India’s first and largest private producer of news, current affairs and entertainment television. Since its inception, the company has been producing television news and current affairs programmes. Riding on the back of this ability, the company simultaneously launched two news channels - NDTV 24X7 (English) and NDTV India (Hindi) in April 2003, which was followed by the launch of NDTV Profit - a business news channel - in January 2005. The company has three subsidiaries - NDTV Media, NDTV World and NDTV News

Key strengths
Leader in English news broadcasting: NDTV started its business as a content provider and presenter of news and current affair based programmes. But recently it has undergone a change in its business model after the launch of its two news channels. It is now primarily focused on broadcasting news through its two channels. While its English news channel, NDTV 24X7, is already the leader with a 37% market share in this category, NDTV India continues to trail the market leader, 'Aaj Tak' who has a 32% market share in the Hindi news segment. However, it must be noted that NDTV India has successfully managed to garner a significant market share in this segment, which is currently at 17%, seemingly some of this at the cost of 'Aaj Tak', which commanded an over 40% market share a few months back.

More advertisers and more brands: The primary source of revenue for the company is from advertisements on both its news channels. Since the launch of news channel in April 2003, the company has attracted a total of 986 advertisers and 2086 brands by 2006 thus translating into an impressive CAGR of 76% and 92% respectively. The following chart shows the number of advertisers and brands. Advertising revenues for the company have also grown at an impressive CAGR of 81% during the said period and stood at Rs 209 m during FY06.

Extensive reach: At 48.7 m viewers, NDTV had the widest reach (both the channels combined), and this formed about 23% of the total C&S viewership amongst news channels in the country. With C&S viewership set to witness exciting growth in the coming years, NDTV is likely to be a major beneficiary among news channels of such a trend. This will help the company increase its bargaining power with advertisers and garner additional revenues.

Analysis of the past
Growth in revenues: If we peep into the past then we will find that in FY04, the total revenues were Rs 690 m, which had increased to Rs 2210 m by FY06, translating into an impressive CAGR of 79%. The company’s major revenues came from advertising revenues, which grew by 81% CAGR during the same period and accounted for almost 95% of the company’s total revenues in FY06.

Despite the robust growth in topline, the company has suffered at the operating profits level as operating margins dropped considerably and stood at just 19% of sales in FY06 as compared to 30% in the previous year. Net profit margins have also come under pressure during FY06 on account of pressure at the operating level as well as extraordinary income to the tune of Rs 279 m, a major factor behind the company’s bleeding at the net profit levels. Higher depreciation has also not helped matters.

  FY02 FY03 FY04 FY05 FY06
Net sales(Rs m) 945 1085 690 1761 2210
% growth   15% -36% 155% 25%
PAT 264 181 -500 354 -20
%growth   -31% -376% -171% -106%
Profitability ratios
EBITDA margins (%) 31% 30% -50% 30% 19%
EBIT margins (%) 34% 26% -64% 25% 14%
Net profit margin(%) 28% 17% -73% 20% -1%

What to expect?
At Rs 203, the stock is trading at 6 times its FY06 sales. Valuations on the price to earnings basis could not be calculated as the company has been in the red for 3 of the past 4 quarters. We believe that the management strength and the company’s efforts at identifying new avenues of growth seem to be providing the real thrust. However, unless some tangible results come forth, we view the risk to be on the higher side.

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