• NOVEMBER 17, 2004

TV Today: Disappointing slot

Performance summary
TV Today, an India Today Group company and the leader in the Hindi news segment in the country, continued its disappointing financial performance in the September 2004 quarter. Not only did the company register a negative topline growth during the quarter, a sharp increase in operating expenses dented the company’s operating performance severely, pushing it’s bottomline into the red.

(Rs m)2QFY042QFY05Change1HFY041HFY05Change
Net Sales 278 268 -3.6% 560 613 9.5%
Expenditure 158 270 71.5% 307 502 63.5%
Operating Profit (EBDITA) 120 (3)  253 110 -56.3%
EBITDA margin (%)43.2%-1.0% 45.1%18.0% 
Other income 1 25   3 46  
Interest 0 0 0.0% 11 1 -94.7%
Depreciation 26 40 50.2% 49 76 54.8%
Profit before tax94 (18) 19579-59.5%
Tax 34 (7)  70 29 -58.8%
Profit after Tax/(Loss) 61 (11)  126 50 -59.9%
Net profit margin (%)21.8%-4.2% 22.5%8.2% 
No. of Shares (m) 48.0 58.0   48.0 58.0  
Diluted earnings per share*5.0-0.8 5.21.7 
Price to earnings ratio (x)    51.8 
(* annualised)      

Hindi news genre leader
TV Today, the owner of the two news channels, 'Aaj Tak' (Hindi) and ‘Headlines Today’ (English), is a leading business news broadcaster of India. Its Hindi news channel, 'Aaj Tak' (launched over 4 years back) continues to remain the most popular news channel in the country and there is little doubt in the company's claim that it has changed the way news is delivered to Indian audiences. While 'Aaj Tak' delivers news in Hindi, reaching out to the large Hindi belt constituting approximately 52% of India's urban population as per NRS 2002, the English news channel, 'Headlines Today', is primarily targeted at the young urban audience.

What has driven performance in 2QFY05?
Net sales:  The topline of the company registered a 4% YoY fall during the quarter and on a QoQ basis, the fall has been sharper at 22%, the latter being a factor of the reduced contribution from the election mania. While the company has a large and a diversified base of advertisers on its channels and has long-term contracts with many of these, the fall in topline has come as a surprise to us. Seemingly, the lack of contribution from its English channel ‘Aaj Tak’ towards topline and profitability continues to remain a drag on the company’s overall performance. It must be noted here that the company continues to derive its revenues primarily from advertisement, as it has not gone ‘pay’ for its two channels yet.

On the subscriptions front, while the company had expressed its intentions of becoming a pay channel once CAS is in place, as yet there seems to be no progress on either front – pay and CAS. Also, the company had expressed intentions of going international to markets like the US and the UK, in an effort in order to tap the huge Indian population that has a presence in these countries. However, as yet, there has been no further announcement by the company in this regard.

Operating profits:  The total expenditure during the quarter witnessed a sharp rise of 72% YoY during the quarter despite a falling topline, pushing the company into losses at the operating level itself. The margins crashed from over 43% in 2QFY04 to –1% in 2QFY05. If we consider the details of the operating expenses, while the employee costs have surged by over 90% YoY, the transmission and production costs have also doubled. As per the company presentation, the rise in the latter can be attributed to the increased expenditure on non-recurring events like state elections, Olympics and recurring expenses like cricket. Other expenses have also more than doubled. Additional coverage and manpower led to an increase in the company’s expenses on traveling and communication. As far as the advertisement and promotional expenses are concerned (156% growth YoY), a dedicated media campaign aimed at promoting its English channel ‘Headlines Today’, led to higher expenses under this head.

Further, it must be noted that significant competition has cropped up in the news segment with the entry of news channels like Sahara Samay and NDTV India. Even DD News has undergone a revamp and is now a stronger contender in the Hindi news genre. All this has forced TV Today to compete harder and spend more in order to maintain its already deteriorating market share. Just to put things in perspective, the company’s channel ‘Aaj Tak’ has lost its clear dominance, which can be gauged from the fact that it has been consistently losing market share over the last couple of years from near 55% levels to the current approximate 28% in terms of Hindi news viewership.

Net profit:  The bottomline of the company registered a loss during the quarter primarily affected by the poor operating performance. While there has been a 50% rise in depreciation expenses, which could be attributed to the addition of vans to increase coverage and reach, interest outgo continues to remain negligible. Further, it must be noted that the bottomline would have had been much worse but for the sharp rise in the other income component.

What to expect?
At Rs 90, the stock is trading at a P/E multiple of 51.8x its 1HFY05 annualised earnings. TV Today is primarily a news broadcasting company with ad revenues forming almost its entire topline. Thus, the strong base of advertisers for the company’s news channels is a big positive. Though competition is likely to continue, we feel that in the medium term, the company is relatively well placed to face the competition in the Hindi news genre on the back of its strong brand value and its style of delivering news. However, investors should keep in mind the relatively higher risk profile of the company owing to lack of diversification, as well as its reliance on one channel (Aaj Tak) for revenues.

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