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TV18: In control - Views on News from Equitymaster
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TV18: In control
Oct 31, 2005

Performance Summary
TV18 has announced robust results for the quarter ended September 2005. Thus, with two consecutive quarters of good performance, the company’s first-half financial picture is impressive. For 2QFY06, while the topline has notched an impressive growth of 55% YoY, operating profits have grown even faster at 69%, thanks to less-than-proportionate rise in expenditure. However, high financial charges capped the bottomline growth at 42% YoY. For 1HFY06, while the topline growth has been 56% YoY, the bottomline has increased by 35% YoY.

Consolidated snapshot…
(Rs m) 2QFY05 2QFY06 Change 1HFY05 1HFY06 Change
Net Sales 199 308 54.8% 368 574 55.9%
Expenditure 98 137 40.3% 181 268 48.2%
Operating Profit (EBDITA) 101 171 68.9% 187 306 63.3%
EBITDA margin (%) 50.8% 55.4%   50.9% 53.3%  
Interest 4 12 159.4% 6 23 258.6%
Depreciation 17 44 161.8% 29 74 152.7%
Profit before tax 80 115 44.4% 152 209 37.8%
Extraordinary items (8) (9) 9.8% (14) (19) 34.0%
Tax 2 7 297.1% 5 10 113.5%
Profit after Tax/(Loss) 70 100 42.1% 133 180 35.4%
Net profit margin (%) 35.4% 32.5%   36.1% 31.3%  
No. of Shares (m) 15.5 21.0   15.5 21.0  
Diluted earnings per share* 18.1 19.0   17.1 17.1  
Price to earnings ratio (x)         21.2  
(* 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 and has another portal dedicated to commodities.

What has driven performance in 2QFY06?
Capitalising on positive sentiments: The Indian stockmarkets were trading in a different orbit during 2QFY06, the direct beneficiaries of which, apart from investors, have been business news channels, which attracted significant eyeballs. And TV18 being the clear leader in this category with a 35% market share of English news viewership, followed by the two NDTV channels (combined market share greater than that of TV18), the company has made the utmost of the available opportunity to cash in on the stockmarket boom.

* 2QFY06 = NDTV 24X7 + NDTV profit
Source: TV18 Inv. Update 2QFY06

The company’s Hindi consumer channel (Awaaz), which was launched in January 2005, is also doing well. Though the channel continues to eat into the company’s profits, as per TV18’s press release, the revenues of Awaaz have increased to Rs 40 m (about 13% of 2QFY06 revenues) as the channel continues to attract more viewers and consequently more advertisers. However, this channel continues to remain a drag on the overall financials of the company, as it registered a loss of Rs 20 m at the operating level. But this performance has considerably improved, considering that the operational loss was at Rs 40 m in 1QFY06

Margins making new highs: The operating margins during the quarter for the company were at historic highs of 55%+ (see adjoining chart), nearly 460 basis points higher than the corresponding quarter of the previous fiscal. 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. Nonetheless, better ad rate realisations have helped the company achieve this feat.

Bottomline lags topline: Despite the 55% YoY growth in topline and the even stronger 69% YoY rise in operating profits, the company ended the quarter with a much lower bottomline growth of 42% YoY. This could be attributed to a significant rise in depreciation expenses, which could be owing to the fact that a state-of-the-art broadcasting facility was scheduled to become operational in 4QFY05 and thus, depreciation was higher in 1QFY06 also. Apart from this, a rise in interest expenses also played its part in capping the bottomline growth.

What to expect?
At Rs 363, the stock is trading at a price to earnings multiple of 12.2 times our estimated FY08 earnings. Considering the first half performance of the company, we believe that the company would be able to meet our full year estimates and as such, we would not be making any major changes to our numbers. 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), we are comfortable about the company’s prospects, going forward.

Other moves by the company, such as 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, through its JV (26% stake) Global Broadcast News, in collaboration with a strong team of professionals and in partnership with Turner International. The channel will be co-branded CNN-IBN (India Broadcast News).

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