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NDTV: Beaming optimism

Nov 9, 2004

NDTV continued to deliver a strong performance in FY05, which is evident from its positive 2QFY05 results. However, this improvement in performance is on a YoY basis because when compared to the previous quarter (QoQ), the performance has been somewhat lower on the back of a reduced topline. This, however, should be looked at in the backdrop of the fact that 1QFY05 was characterised by general elections in the country and strong ad revenues had propped up the channels revenues.

What is the company’s business?
NDTV is one of India’s leading broadcasters and producer of news and current affairs programmes. Since its inception in 1988, NDTV produced television news and current affairs programmes for various channels. However, in April 2003, the company simultaneously launched two news channels - NDTV 24X7 (English) and NDTV India (Hindi). With this, the company’s primary business has changed from production of television software for other broadcasters to television news broadcasting through its own channels.

Financial performance (Consolidated): A snapshot…
(Rs m)2QFY042QFY05Change1HFY041HFY05Change
Net Sales 107 349 225.6% 174 748 329.4%
Expenditure 255 290 13.5% 514 570 10.8%
Operating Profit (EBDITA) (148) 59   (340) 179  
EBITDA margin (%)-138.1%17.0% -194.9%23.9% 
Other income 6 15 145.8% 15 21 44.8%
Interest 2 1 -39.0% 2 6 238.8%
Depreciation 33 31 -6.2% 61 60 -1.0%
Profit before tax (177) 42   (388)134 
Tax 20 12 -42.4% 20 25 22.3%
Profit after Tax/(Loss) before minority interest (197) 30   (408) 109  
Minority Interest - 2   (5) 5  
Profit after Tax/(Loss) after minority interest (197) 28   (403) 104  
Net profit margin (%)-184.1%8.6% -234.1%14.6% 
No. of Shares (m) 42.1 60.8   42.1 60.8  
Diluted earnings per share*  1.9   3.6 
Price to earnings ratio (x)  56.6    29.3  
(* annualised)      

What has driven the performance in 2QFY05?
Sales: NDTV has registered a YoY topline growth of 226% during the September 2004 quarter. This can be attributed to the increase in viewership as the company has not only maintained its leadership position in the English news segment but has also managed to close the gap with the market leader, Aaj Tak, in the Hindi news segment. Further, akin to 1QFY05, while there was an absence of a big revenue booster like the general elections, contribution of state elections in aiding revenue growth during 2QFY05 cannot be ruled out. It must be noted that the company has consistently managed to ramp up its advertisers’ base and the number of brands advertised on its channels over the last few quarters (see chart below).

Operating margins: The operating margins of the company during 2QFY05 were at 17% compared to near 30% in 1QFY05. It must be noted that NDTV was in losses in the same quarter previous year. The company has seemingly managed to control its expenses as the operating expenditure rose by 14% YoY. While most of the operating expenditure heads remained under control, employee costs, which forms the largest chunk (44%) of the company’s total operating expenditure grew by 24% YoY.

Net Profits: NDTV has continued its profitable journey into 2QFY05 also as the company declared a profit of Rs 28 m compared to Rs 197 m loss in the corresponding quarter last year. With this, the company’s PAT for 1HFY05 is at Rs 104 m compared to a loss of over Rs 400 m in the same period last year. Improved viewership and higher ad revenues continue to play an important role in aiding the company’s turnaround.

What to expect?
At Rs 105, the stock trades at a P/E multiple of about 29x its 1HFY05 annualised earnings. The company’s turnaround in 1HFY05 is heartening. NDTV is primarily a news broadcasting company with advertisements forming almost 90% of its revenues. The increasing base of advertisers on the company’s news channels augurs well for the company. Further, the company recently filed an application with the Information & Broadcasting Ministry seeking approval for a 24-hour business channel. It must be noted that NDTV currently operates in the business news segment through its channel, NDTV 24X7, wherein it has 9am-4pm business slot. The launch of a full-fledged business news channel would help the company widen its viewership and consequently its ad revenue base.

However, the relatively higher risk profile of NDTV has to be kept in mind owing to its lack of diversification (reliance on only one segment – news). Though competition is likely to hot up further in the coming months, we feel that in the medium term, the company seems well placed to face the competition in the industry on the back of its strong brand value and its style of delivering news through its well known team of journalists/anchors.

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