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IBN 18
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.115
FY12E P/E: 43.8X
q IBN 18 has reported a strong set of results for 3QFY11. The results are
well above our estimates, with revenues coming in at Rs 2362mn, and
PAT Rs 155mn, against our estimates of Rs 2079 mn and Rs (75) mn respectively.
Reported financials are the highest in IBN18's history.
q Revenue growth came on the back of high growth in both news operations
(+24% y/y) and entertainment operations (+21%, y/y). News operations
as well as consolidated operations have been EBITDA-positive this
quarter, on the back of strong advertising growth as well as management
of expenses.
q Subscription revenues for the company have continued to account for 10-
11% of total revenues. The release guides for soft growth in subscription
revenues through the remainder of FY11, with strong growth expected
FY12-onwards. We continue to believe that IBN18 shall be able to carve a
space for itself in the distribution revenue pie of broadcasters -with Colors'
competitive position being the key factor to watch.
q We change our estimates to incorporate higher growth in advertising
revenues of the company, as well as higher expenses (on account of programming).
We upgrade FY11E/ FY12E EPS to Rs (0.4)/ Rs 2.3. We raise
our FY12-end price target to Rs 115/ share, and believe that upsides could
exist to our price target if Viacom18 is able to successfully launch a Hindi
movie channel. We retain our ACCUMULATE rating on the stock.
We note that:
n Growth has come in from across channels, with standalone revenues registering
26% growth, and Viacom 18 registering 24% growth. Revenues of Viacom 18
have benefited from high budget shows/ films such as Bigg Boss and Dabangg -
which have also led to an increase in expenses. On the conference call, the
management has indicated that there is an element of seasonality in the
quarter's results, and that the fourth quarter results are likely to be midway between
Q2 & Q3 FY11 results.
n The company has been able to reduce expenses on selling and distribution - the
prime driver of profits on the expenses side. Management has guided that carriage
fees shall continue to decline over time as the company's channels mature
and as further digitization is achieved.
n Subscription revenues of the company have not grown in a significant manner in
the quarter. The company continued to maintain that subscription revenues accounted
for ~10-11% of the revenues of the company. Sun18 is in the process of
finalizing deals with cable operators/ DTH operators, and large changes in subscription
revenues are expected in FY12.
n We are comforted by the fact that Network 18 group as a whole is moving towards
profitability. Network 18 (holding company for IBN18 and TV-18) has reported
revenues of Rs 4060mn and EBITDA of Rs 330mn for the quarter. Only
two divisions - local search (Ask Me), and Homeshop 18, continue to be lossmaking,
as per management comments. As such, incrementally, we believe
Network 18 is in a better position to make further investments in broadcasting.
n Viacom18 has finished acquiring TIFC, incurring an investment of ~Rs 2Bn in the
transaction. TIFC may be utilized for purposes of developing an integrated model
of movie production/ acquisition and broadcasting.
The management has indicated that reorganization of Network18 group companies
is expected to be completed in the next six months. The company has provided
broad financials for the broadcasting operations of the new TV 18
Investment View
n IBN18 is a play on the monetization of mass channels held under its JV Viacom
18. The channels' viewership is under-monetized relative to players such as Zee
Entertainment. While we agree that other broadcasters in the Indian market
(Zee, Star, Sony) have a more complete bouquet, we think IBN18 shall be able
to create a space for itself, in so much as higher subscription revenues are concerned.
While, we expect the process to be gradual, we expect IBN18 to bring in
~50% of IBN18's analogue revenues in two-three years.
n Expansion in subscription revenues shall flow into EBITDA in a large way, leading
to substantial improvement in margins for IBN18 - the driver for IBN18's value
creation.
n 3QFY11 results are a positive, as they demonstrate that the company can remain
EBITDA positive even in the absence of substantial subscription revenues - advertising
revenue growth along with reduction in distribution expenses can lead to
substantial value creation.
n Restructuring of the Network 18 group companies shall be beneficial to IBN18 in
the near -term as it shall provide a more stable profit path for the company.
n The company has stated that it would be launching a Hindi movie channel in a
few months. Given IBN18's strong execution record in establishing viewership,
and the fact that Viacom 18 has become a cash-generative entity, we are positive
on the development, and we believe a successful launch of movie channel
can help fill gaps in IBN18's bouquet, and lead to an upside in our price target.
n Based on our DCF valuation, we assess the fair value of IBN18 at Rs 115/ share.
We maintain a positive stance on the stock and retain our ACCUMULATE rating.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
IBN 18
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.115
FY12E P/E: 43.8X
q IBN 18 has reported a strong set of results for 3QFY11. The results are
well above our estimates, with revenues coming in at Rs 2362mn, and
PAT Rs 155mn, against our estimates of Rs 2079 mn and Rs (75) mn respectively.
Reported financials are the highest in IBN18's history.
q Revenue growth came on the back of high growth in both news operations
(+24% y/y) and entertainment operations (+21%, y/y). News operations
as well as consolidated operations have been EBITDA-positive this
quarter, on the back of strong advertising growth as well as management
of expenses.
q Subscription revenues for the company have continued to account for 10-
11% of total revenues. The release guides for soft growth in subscription
revenues through the remainder of FY11, with strong growth expected
FY12-onwards. We continue to believe that IBN18 shall be able to carve a
space for itself in the distribution revenue pie of broadcasters -with Colors'
competitive position being the key factor to watch.
q We change our estimates to incorporate higher growth in advertising
revenues of the company, as well as higher expenses (on account of programming).
We upgrade FY11E/ FY12E EPS to Rs (0.4)/ Rs 2.3. We raise
our FY12-end price target to Rs 115/ share, and believe that upsides could
exist to our price target if Viacom18 is able to successfully launch a Hindi
movie channel. We retain our ACCUMULATE rating on the stock.
We note that:
n Growth has come in from across channels, with standalone revenues registering
26% growth, and Viacom 18 registering 24% growth. Revenues of Viacom 18
have benefited from high budget shows/ films such as Bigg Boss and Dabangg -
which have also led to an increase in expenses. On the conference call, the
management has indicated that there is an element of seasonality in the
quarter's results, and that the fourth quarter results are likely to be midway between
Q2 & Q3 FY11 results.
n The company has been able to reduce expenses on selling and distribution - the
prime driver of profits on the expenses side. Management has guided that carriage
fees shall continue to decline over time as the company's channels mature
and as further digitization is achieved.
n Subscription revenues of the company have not grown in a significant manner in
the quarter. The company continued to maintain that subscription revenues accounted
for ~10-11% of the revenues of the company. Sun18 is in the process of
finalizing deals with cable operators/ DTH operators, and large changes in subscription
revenues are expected in FY12.
n We are comforted by the fact that Network 18 group as a whole is moving towards
profitability. Network 18 (holding company for IBN18 and TV-18) has reported
revenues of Rs 4060mn and EBITDA of Rs 330mn for the quarter. Only
two divisions - local search (Ask Me), and Homeshop 18, continue to be lossmaking,
as per management comments. As such, incrementally, we believe
Network 18 is in a better position to make further investments in broadcasting.
n Viacom18 has finished acquiring TIFC, incurring an investment of ~Rs 2Bn in the
transaction. TIFC may be utilized for purposes of developing an integrated model
of movie production/ acquisition and broadcasting.
The management has indicated that reorganization of Network18 group companies
is expected to be completed in the next six months. The company has provided
broad financials for the broadcasting operations of the new TV 18
Investment View
n IBN18 is a play on the monetization of mass channels held under its JV Viacom
18. The channels' viewership is under-monetized relative to players such as Zee
Entertainment. While we agree that other broadcasters in the Indian market
(Zee, Star, Sony) have a more complete bouquet, we think IBN18 shall be able
to create a space for itself, in so much as higher subscription revenues are concerned.
While, we expect the process to be gradual, we expect IBN18 to bring in
~50% of IBN18's analogue revenues in two-three years.
n Expansion in subscription revenues shall flow into EBITDA in a large way, leading
to substantial improvement in margins for IBN18 - the driver for IBN18's value
creation.
n 3QFY11 results are a positive, as they demonstrate that the company can remain
EBITDA positive even in the absence of substantial subscription revenues - advertising
revenue growth along with reduction in distribution expenses can lead to
substantial value creation.
n Restructuring of the Network 18 group companies shall be beneficial to IBN18 in
the near -term as it shall provide a more stable profit path for the company.
n The company has stated that it would be launching a Hindi movie channel in a
few months. Given IBN18's strong execution record in establishing viewership,
and the fact that Viacom 18 has become a cash-generative entity, we are positive
on the development, and we believe a successful launch of movie channel
can help fill gaps in IBN18's bouquet, and lead to an upside in our price target.
n Based on our DCF valuation, we assess the fair value of IBN18 at Rs 115/ share.
We maintain a positive stance on the stock and retain our ACCUMULATE rating.
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