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TV18 BROADCAST
PRICE: RS.63 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.78 FY13E P/E: 22.9X
TV18 Broadcast (formerly IBN18) reported an ordinary set of financials for
1QFY12. Advertising revenue growth has been weak, in line with the
industry, and subscription revenues continue to be modest, with little
visibility on ramp-up . Even as near-term visibility is poor, the stock is, we
believe, rich in potential so long as competitive position holds up; visibility
in subscription revenues can lead to substantial upsides, given current EV/
Sales of 2.2xFY12E. On account of weak performance in recent months, the
stock trades well below our (revised) fair value of Rs.78 (Rs.115 earlier). We
maintain ACCUMULATE.
n Unexciting Results: TV 18 Broadcast (formerly IBN18) reported an average set
of financials for 1QFY12. On a pro-forma basis, the company reported sales
growth of 12%, and EBITDA growth of 14% y/y. Growth in advertising revenues
has been soft on account of weakening macroeconomic environment as well as
cricket season (IPL). Subscription revenues are yet to take off in a big way, and
continue to contribute ~10% to the top-line.
n Debt concerns to persist: TV18 reported net debt of Rs 6.7Bn (up from IBN18's
Rs 3.3Bn in 4QFY11), following corporate restructuring of Network 18 group entities.
The company continues to pay very high levels of interest, resulting in
weak profitability at (adjusted) PAT level. TV18 has incurred high debt on account
of acquiring content, while monetization has been weak (awaiting launch
of movie channel, weak subscription revenues).
n Subscription Revenues - A long wait: The management's guidance on FY12
subscription revenues is soft (~14% of total revenues), in our opinion, and indicate
that there are factors that hold back the company from earning subscription
revenues that appear justifiable, given its bouquet and competitive position of its
channels. We cut our estimates on subscription revenues for the company
through FY12/ FY13.
n Soft profitability in FY12/ FY13, coupled with poor visibility leading to
weak valuations: We estimate Rs 1.0/ Rs 2.7 in EPS for FY12/ FY13. Along with
weak profitability, the launch of the company's Hindi movie channel in a potentially
weak advertising environment makes for poor visibility in profits/ cash
flows. This is likely to affect valuations negatively.
n Cut price target to Rs 78, Maintain ACCUMULATE: We estimate fair value of
TV18 stock at Rs 78 (from Rs 115 earlier), based on a DCF- approach. Two key
positives for the stock lead us to retain a positive stance: 1/ Fundamental asset
(viewership) remains sound across most of the company's channels, 2/ existing
channels need little cash infusion. We maintain ACCUMULATE on the stock,
aiming at substantial upside once subscription revenues visibility is obtained.
n Risks to our investment view include: 1/competitive risks, 2/ weaker than expected
advertising environment, 3/ adverse environment, cash requirements in
new channels may led to further dilution.
Key Takeaways: Results/ Earnings Release/ Conference Call
1. Revenue growth has been soft on a pro-forma basis, at 12.2%. Excluding revenues
that come in from the two movie releases of the company, the company's
revenue growth would have been 9%. As has been the case with other broadcasters
in the quarter (1QFY12), the company has seen lower interest from advertisers,
both as a result of IPL and general slowdown in the economy.
2. Revenue growth was weakest in the business news segment, which grew 6.5%.
General news segments grew 14%, and broke even in the quarter. Entertainment
segment (Viacom 18) grew 18% in the quarter, on the back of two movie
releases. As of now, subscription revenues are still a minor contributor to the
company's topline, at 10%.
3. The company maintained margin of 9% (pro-forma basis), on the back of improvement
in margins of news operations, which offset declines in entertainment
segment margins. We note that expenses of the company have come in lower
than our expectations for three quarters in a row now.
4. Other Income for the quarter included one-time benefits of sale of Web 18 (stake
held by IBN18). Excluding the same, the company would have incurred a loss in
the quarter.
5. TV-18's gross debt stands at Rs 8.5Bn, and net debt at Rs 6.7Bn (post-restructuring).
The net debt is well higher than Rs 3.3Bn at the end of 4QFY11, and is a
result of the re-structuring of Network18 group companies.
6. The weak advertising environment witnessed in 1QFY12 has continued in
2QFY12. The earnings release makes mention of "near-term uncertainty", and
"near-term softness in advertising revenues driven by local and global factors".
On the conference call, we believe the management stopped short of saying
"It's not looking good", when questioned about the second quarter and how it
was shaping up.
7. The company has guided for 14-15% contribution from subscription revenues in
FY12. Management said that subscription revenues are likely to rise somewhat
sharply in 2HFY12.
8. The company is on its way to launch a few new channels, including a Hindi
movies channel, and a few new channels (under AETN18).
Outlook and Investment Thesis
We make changes to our estimates to account for the changed group structure, as
well as: 1/ lower subscription revenue forecast for FY12/FY13, as our prior estimates
of subscription revenues are far more aggressive than management guidance in this
quarter's conference call, 2/ lower expenses on television operations, and 3/ higher
interest cost expenses on account of the changes made in the company's balance
sheet following the reorganization.
We believe that the company can potentially scale up its subscription revenues to a
level that is 50% of Zee Entertainment revenues, over the long term (~5 years).
Should this be realized, we assess the value of the stock at Rs 78/ share (down from
Rs 115/ share, on account of weaker assumptions on medium-term subscription revenues,
higher discounting rate, and unexpectedly high net debt resulting from the
reorganization).
While advertising revenues growth remains soft, a few factors are positive: 1/ competitive
position of the company's channels has strengthened. Colors has emerged
as the #1 channel during prime-time, and remains in the reckoning to replace Star
Plus for the #1 position overall. The sustenance of competitive position shall be an
important determinant in whether the company can extract stronger subscription revenues
in future, 2/ news channels have turned to profitability, providing the company
some space to launch new channels, while maintaining a reasonable profit
path, 3/ the gap between subscription revenues of TV18 and industry benchmarks
(read ZEEL) is massive, which will allow the company to ramp up margins substantially
once subscription revenues rise to potential.
We maintain ACCUMULATE on TV18, with a (revised) price target of Rs 78/ share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TV18 BROADCAST
PRICE: RS.63 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.78 FY13E P/E: 22.9X
TV18 Broadcast (formerly IBN18) reported an ordinary set of financials for
1QFY12. Advertising revenue growth has been weak, in line with the
industry, and subscription revenues continue to be modest, with little
visibility on ramp-up . Even as near-term visibility is poor, the stock is, we
believe, rich in potential so long as competitive position holds up; visibility
in subscription revenues can lead to substantial upsides, given current EV/
Sales of 2.2xFY12E. On account of weak performance in recent months, the
stock trades well below our (revised) fair value of Rs.78 (Rs.115 earlier). We
maintain ACCUMULATE.
n Unexciting Results: TV 18 Broadcast (formerly IBN18) reported an average set
of financials for 1QFY12. On a pro-forma basis, the company reported sales
growth of 12%, and EBITDA growth of 14% y/y. Growth in advertising revenues
has been soft on account of weakening macroeconomic environment as well as
cricket season (IPL). Subscription revenues are yet to take off in a big way, and
continue to contribute ~10% to the top-line.
n Debt concerns to persist: TV18 reported net debt of Rs 6.7Bn (up from IBN18's
Rs 3.3Bn in 4QFY11), following corporate restructuring of Network 18 group entities.
The company continues to pay very high levels of interest, resulting in
weak profitability at (adjusted) PAT level. TV18 has incurred high debt on account
of acquiring content, while monetization has been weak (awaiting launch
of movie channel, weak subscription revenues).
n Subscription Revenues - A long wait: The management's guidance on FY12
subscription revenues is soft (~14% of total revenues), in our opinion, and indicate
that there are factors that hold back the company from earning subscription
revenues that appear justifiable, given its bouquet and competitive position of its
channels. We cut our estimates on subscription revenues for the company
through FY12/ FY13.
n Soft profitability in FY12/ FY13, coupled with poor visibility leading to
weak valuations: We estimate Rs 1.0/ Rs 2.7 in EPS for FY12/ FY13. Along with
weak profitability, the launch of the company's Hindi movie channel in a potentially
weak advertising environment makes for poor visibility in profits/ cash
flows. This is likely to affect valuations negatively.
n Cut price target to Rs 78, Maintain ACCUMULATE: We estimate fair value of
TV18 stock at Rs 78 (from Rs 115 earlier), based on a DCF- approach. Two key
positives for the stock lead us to retain a positive stance: 1/ Fundamental asset
(viewership) remains sound across most of the company's channels, 2/ existing
channels need little cash infusion. We maintain ACCUMULATE on the stock,
aiming at substantial upside once subscription revenues visibility is obtained.
n Risks to our investment view include: 1/competitive risks, 2/ weaker than expected
advertising environment, 3/ adverse environment, cash requirements in
new channels may led to further dilution.
Key Takeaways: Results/ Earnings Release/ Conference Call
1. Revenue growth has been soft on a pro-forma basis, at 12.2%. Excluding revenues
that come in from the two movie releases of the company, the company's
revenue growth would have been 9%. As has been the case with other broadcasters
in the quarter (1QFY12), the company has seen lower interest from advertisers,
both as a result of IPL and general slowdown in the economy.
2. Revenue growth was weakest in the business news segment, which grew 6.5%.
General news segments grew 14%, and broke even in the quarter. Entertainment
segment (Viacom 18) grew 18% in the quarter, on the back of two movie
releases. As of now, subscription revenues are still a minor contributor to the
company's topline, at 10%.
3. The company maintained margin of 9% (pro-forma basis), on the back of improvement
in margins of news operations, which offset declines in entertainment
segment margins. We note that expenses of the company have come in lower
than our expectations for three quarters in a row now.
4. Other Income for the quarter included one-time benefits of sale of Web 18 (stake
held by IBN18). Excluding the same, the company would have incurred a loss in
the quarter.
5. TV-18's gross debt stands at Rs 8.5Bn, and net debt at Rs 6.7Bn (post-restructuring).
The net debt is well higher than Rs 3.3Bn at the end of 4QFY11, and is a
result of the re-structuring of Network18 group companies.
6. The weak advertising environment witnessed in 1QFY12 has continued in
2QFY12. The earnings release makes mention of "near-term uncertainty", and
"near-term softness in advertising revenues driven by local and global factors".
On the conference call, we believe the management stopped short of saying
"It's not looking good", when questioned about the second quarter and how it
was shaping up.
7. The company has guided for 14-15% contribution from subscription revenues in
FY12. Management said that subscription revenues are likely to rise somewhat
sharply in 2HFY12.
8. The company is on its way to launch a few new channels, including a Hindi
movies channel, and a few new channels (under AETN18).
Outlook and Investment Thesis
We make changes to our estimates to account for the changed group structure, as
well as: 1/ lower subscription revenue forecast for FY12/FY13, as our prior estimates
of subscription revenues are far more aggressive than management guidance in this
quarter's conference call, 2/ lower expenses on television operations, and 3/ higher
interest cost expenses on account of the changes made in the company's balance
sheet following the reorganization.
We believe that the company can potentially scale up its subscription revenues to a
level that is 50% of Zee Entertainment revenues, over the long term (~5 years).
Should this be realized, we assess the value of the stock at Rs 78/ share (down from
Rs 115/ share, on account of weaker assumptions on medium-term subscription revenues,
higher discounting rate, and unexpectedly high net debt resulting from the
reorganization).
While advertising revenues growth remains soft, a few factors are positive: 1/ competitive
position of the company's channels has strengthened. Colors has emerged
as the #1 channel during prime-time, and remains in the reckoning to replace Star
Plus for the #1 position overall. The sustenance of competitive position shall be an
important determinant in whether the company can extract stronger subscription revenues
in future, 2/ news channels have turned to profitability, providing the company
some space to launch new channels, while maintaining a reasonable profit
path, 3/ the gap between subscription revenues of TV18 and industry benchmarks
(read ZEEL) is massive, which will allow the company to ramp up margins substantially
once subscription revenues rise to potential.
We maintain ACCUMULATE on TV18, with a (revised) price target of Rs 78/ share.
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