Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
TV18 Broadcast
Play on subscription growth
„ Event: stock price underperformance, management meeting takeaways
TV18’s (IBN18 restructured) share price has underperformed the BSE Sensex by
42% YTD due to a weak FY12 advertising outlook, concerns about the high
leverage, and disappointing 1Q results, in our view. Takeaways from a meeting
with Raghav Bahl, Founder and Editor–Network18: 1) while subscription revenue
growth is on track for FY12, the entertainment channels’ ad revenues are likely to
grow at sub-10% [versus 15% guidance earlier]; 2) new channel launches [Hindi
movie channel and history channel AETN-18] will negatively impact EBITDA
margins in FY12.
„ Impact: lower earnings estimates by 42%/43% for FY12/FY13E
We lower our near-term estimates to incorporate the financial impact of the launch
of the Hindi movie channel, the History channel (AETN-18), and a few HD
channels, coupled with weakness in ad revenues in FY12. We believe the ad
weakness is short-term in nature and expect a recovery in FY13.
„ Action: maintain Buy; subscription rev to grow at 39% CAGR (FY11-15E)
We believe TV18 continues to be a long-term play on growing subscription
revenue. TV18’s subscription revenue (at 12% of revenue) is below the industry
average (20%) as some of its channels are relatively new. We expect it to increase
to industry levels by FY15. Most TV18 channels are among the top three in their
respective genres. While new launches will impact near-term margins, we believe
it is a medium-term positive.
„ Valuation: Buy rating, lower price target from Rs130 to Rs60
We now value TV18 at 12x FY13E target EBITDA multiple (a 20% discount to
Zee as well as its historical trading average) versus DCF earlier
Stock price underperformance
TV18 share price is down 55% and the stock has underperformed the BSE
Sensex by 42% YTD. We believe the key reasons are:
1) Disappointing 1Q results: TV18 reported a net loss in 1QFY12 (post a onetime income adjustment). We believe the key reason for reporting a net loss
(adjusted) in 1Q was a significant increase in interest expense (up 141% QoQ).
Net debt increased in 1Q due to: a) debt related to the business news channels
coming under TV18 as a result of the restructuring at the group level; and b) net
debt at Viacom18 increased as Viacom18 is building a movie library for the
launch of the Hindi movie channel.
2) Weak advertising outlook for FY12 and pressure on viewership share: a
comparison of weekly GRPs in 2011 suggests that competitive intensity has
increased amongst the Hindi general entertainment channels (GEC) with Sony
now becoming the No.2 channel in the past few weeks, driven by the success of
its new fiction show ‘Bade Achche Lagte Hain’ and the reality show ‘Kaun
Banega Crorepati’. This will lead to pressure on advertising revenues for Colors
and Zee TV, in our view
Advertising volumes and yields have been under pressure for Hindi GECs in
1HFY12, mainly led by rising interest rates and raw material cost pressures. As
can be seen from the table above, Sony is the only large Hindi GEC where
advertising volumes have improved during July-August 2011.
We believe there is a high probability that Colors will regain the #2 slot with its
reality show Big Boss 5, which starts during the festival season. We also expect
a pick-up in advertising during the festival season (in October).
TV18 is a play on subscription revenue growth
We maintain our Buy rating on TV18, despite the weakness in the near-term
advertising revenue outlook, as we believe TV18 is a long-term play on
subscription revenue growth. We expect subscription revenue to grow from an
estimated Rs1.2bn in FY11 to Rs4.5bn by FY15E, implying a CAGR of 39% led
by:
1) Rapidly expanding digital subscriber base: The digital subscriber base in
India is growing rapidly, leading to an increase in the disclosure of subscriber
numbers, and hence subscription revenue.
2) Formation of a distribution company in partnership with Sun TV: TV18 has a
partnership with Sun Network (a dominant broadcaster in South India) to jointly
distribute a 33-channel bouquet. Viacom18’s portfolio was previously
distributed by The One Alliance, which we believe was a sub-optimal deal, as
we estimate Viacom18 would have earned Rs2.25bn in revenue over three years
for its entire bouquet. We believe this was low, given the success of Colors in
terms of share of viewership.
3) Expansion into international markets.
Management meeting takeaways
Q TV18 is witnessing weakness in the advertising outlook at the H-GEC level
(Colors), while the news channels continue to be relatively strong and robust.
TV18’s management expects Viacom18’s (entertainment channels: Colors,
MTV, Nickelodeon and VH1) advertising revenue growth to be sub-10% in
FY12 (versus earlier guidance of ~15%).
Q Subscription revenue growth is on track and management expects it to grow
to 14% of revenue in FY12 (Rs1.9-2bn). Management expects subscription
revenue to increase from 12% of revenue currently to over 30% in the next
five years.
Q Mr. Bahl mentioned that net debt should not increase beyond Rs8bn
(currently at Rs6.7bn) as Viacom18 would need more debt for new channel
launches.
Q The existing TV channels are likely to report EBITDA margin expansion in
FY12. However, losses from potential new channel launches (Hindi movie
and history channels) could lower profitability.
Q In the next five years, TV18 will evaluate new channel launches in the
following genres: Hindi movie channel (FY12), AETN 18 - history channel
(FY12), a few existing channels in HD format, and regional channels
including regional news (business news or general news).
We lower our near-term estimates to incorporate the weak advertising outlook
for Viacom18 and margin pressure led by new channel launches in 2HFY12 –
Colors Movies and AETN-18.
We expect TV18’s EBITDA margin to contract by 260 bps (on a pro-forma
basis) and Viacom18’s EBITDA margins to contract by 430bps in FY12 as we
expect operating costs to increase significantly due to:
Q Launch of the Hindi movie channel as the company is acquiring satellite
rights for multiple big budget movies in FY12. TV18 amortises 50% of the
cost of the movie in the first year itself. The company’s strategy for the Hindi
movie channel launch will be similar to its strategy for the launch of Colors,
in our view.
Q Viacom18 is likely to continue to host shows with Bollywood celebrities,
which will further add to costs. Colors is starting with Bigg Boss 5 for the
festive season, which will be hosted by two Bollywood celebrities (Salman
Khan and Sanjay Dutt).
Q TV18 is likely to launch a few HD channels in FY12 as well.
Q Planned launch of history channel – AETN18.
We are 30-38% below consensus in our net profit estimates for FY12-13E.
We lower our price target from Rs130 to Rs60 as we lower our earnings
estimates for FY12-13E. We now value TV18 at 12x FY13E target EBITDA
multiple (20% discount to Zee as well as its historical trading average) versus
DCF earlier.
Table -- Price target derivation
FY13E target EV / EBITDA multiple 12x
FY13 EBITDA 2,403
Implied EV 28,933
Less: net debt 7,314
Implied equity value 21,619
Number of shares 362
Value per share 60
Source: UBS estimates
Q TV18 Broadcast
IBN18 was incorporated in June 2005 as Global Broadcast News and started
commercial operations in December 2005. IBN18 operates news channels CNN
IBN and IBN7. It is a subsidiary of Network18 Group, a media conglomerate in
India. IBN18 has a 50:50 JV with Viacom named Viacom18, which operates
Colors, MTV, VH1 and Nickelodeon. IBN18 also operates regional (Marathi)
news channel, IBN Lokmat, under a 50:50 JV with Lokmat Group (IBN
Lokmat). IBN18 acquired the business news channels (CNBC TV18 and CNBC
Awaaz) from TV18 in a group restructuring in July 2010.
Q Statement of Risk
We believe the key risks for TV18 are: 1) intense competition in most of its
broadcasting genres, especially the Hindi GEC; 2) heavy reliance on advertising
revenue; and 3) regulatory risk, as the news segment of the Indian broadcasting
industry is exposed to significant regulation on up-linking and ownership
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
TV18 Broadcast
Play on subscription growth
„ Event: stock price underperformance, management meeting takeaways
TV18’s (IBN18 restructured) share price has underperformed the BSE Sensex by
42% YTD due to a weak FY12 advertising outlook, concerns about the high
leverage, and disappointing 1Q results, in our view. Takeaways from a meeting
with Raghav Bahl, Founder and Editor–Network18: 1) while subscription revenue
growth is on track for FY12, the entertainment channels’ ad revenues are likely to
grow at sub-10% [versus 15% guidance earlier]; 2) new channel launches [Hindi
movie channel and history channel AETN-18] will negatively impact EBITDA
margins in FY12.
„ Impact: lower earnings estimates by 42%/43% for FY12/FY13E
We lower our near-term estimates to incorporate the financial impact of the launch
of the Hindi movie channel, the History channel (AETN-18), and a few HD
channels, coupled with weakness in ad revenues in FY12. We believe the ad
weakness is short-term in nature and expect a recovery in FY13.
„ Action: maintain Buy; subscription rev to grow at 39% CAGR (FY11-15E)
We believe TV18 continues to be a long-term play on growing subscription
revenue. TV18’s subscription revenue (at 12% of revenue) is below the industry
average (20%) as some of its channels are relatively new. We expect it to increase
to industry levels by FY15. Most TV18 channels are among the top three in their
respective genres. While new launches will impact near-term margins, we believe
it is a medium-term positive.
„ Valuation: Buy rating, lower price target from Rs130 to Rs60
We now value TV18 at 12x FY13E target EBITDA multiple (a 20% discount to
Zee as well as its historical trading average) versus DCF earlier
Stock price underperformance
TV18 share price is down 55% and the stock has underperformed the BSE
Sensex by 42% YTD. We believe the key reasons are:
1) Disappointing 1Q results: TV18 reported a net loss in 1QFY12 (post a onetime income adjustment). We believe the key reason for reporting a net loss
(adjusted) in 1Q was a significant increase in interest expense (up 141% QoQ).
Net debt increased in 1Q due to: a) debt related to the business news channels
coming under TV18 as a result of the restructuring at the group level; and b) net
debt at Viacom18 increased as Viacom18 is building a movie library for the
launch of the Hindi movie channel.
2) Weak advertising outlook for FY12 and pressure on viewership share: a
comparison of weekly GRPs in 2011 suggests that competitive intensity has
increased amongst the Hindi general entertainment channels (GEC) with Sony
now becoming the No.2 channel in the past few weeks, driven by the success of
its new fiction show ‘Bade Achche Lagte Hain’ and the reality show ‘Kaun
Banega Crorepati’. This will lead to pressure on advertising revenues for Colors
and Zee TV, in our view
Advertising volumes and yields have been under pressure for Hindi GECs in
1HFY12, mainly led by rising interest rates and raw material cost pressures. As
can be seen from the table above, Sony is the only large Hindi GEC where
advertising volumes have improved during July-August 2011.
We believe there is a high probability that Colors will regain the #2 slot with its
reality show Big Boss 5, which starts during the festival season. We also expect
a pick-up in advertising during the festival season (in October).
TV18 is a play on subscription revenue growth
We maintain our Buy rating on TV18, despite the weakness in the near-term
advertising revenue outlook, as we believe TV18 is a long-term play on
subscription revenue growth. We expect subscription revenue to grow from an
estimated Rs1.2bn in FY11 to Rs4.5bn by FY15E, implying a CAGR of 39% led
by:
1) Rapidly expanding digital subscriber base: The digital subscriber base in
India is growing rapidly, leading to an increase in the disclosure of subscriber
numbers, and hence subscription revenue.
2) Formation of a distribution company in partnership with Sun TV: TV18 has a
partnership with Sun Network (a dominant broadcaster in South India) to jointly
distribute a 33-channel bouquet. Viacom18’s portfolio was previously
distributed by The One Alliance, which we believe was a sub-optimal deal, as
we estimate Viacom18 would have earned Rs2.25bn in revenue over three years
for its entire bouquet. We believe this was low, given the success of Colors in
terms of share of viewership.
3) Expansion into international markets.
Management meeting takeaways
Q TV18 is witnessing weakness in the advertising outlook at the H-GEC level
(Colors), while the news channels continue to be relatively strong and robust.
TV18’s management expects Viacom18’s (entertainment channels: Colors,
MTV, Nickelodeon and VH1) advertising revenue growth to be sub-10% in
FY12 (versus earlier guidance of ~15%).
Q Subscription revenue growth is on track and management expects it to grow
to 14% of revenue in FY12 (Rs1.9-2bn). Management expects subscription
revenue to increase from 12% of revenue currently to over 30% in the next
five years.
Q Mr. Bahl mentioned that net debt should not increase beyond Rs8bn
(currently at Rs6.7bn) as Viacom18 would need more debt for new channel
launches.
Q The existing TV channels are likely to report EBITDA margin expansion in
FY12. However, losses from potential new channel launches (Hindi movie
and history channels) could lower profitability.
Q In the next five years, TV18 will evaluate new channel launches in the
following genres: Hindi movie channel (FY12), AETN 18 - history channel
(FY12), a few existing channels in HD format, and regional channels
including regional news (business news or general news).
We lower our near-term estimates to incorporate the weak advertising outlook
for Viacom18 and margin pressure led by new channel launches in 2HFY12 –
Colors Movies and AETN-18.
We expect TV18’s EBITDA margin to contract by 260 bps (on a pro-forma
basis) and Viacom18’s EBITDA margins to contract by 430bps in FY12 as we
expect operating costs to increase significantly due to:
Q Launch of the Hindi movie channel as the company is acquiring satellite
rights for multiple big budget movies in FY12. TV18 amortises 50% of the
cost of the movie in the first year itself. The company’s strategy for the Hindi
movie channel launch will be similar to its strategy for the launch of Colors,
in our view.
Q Viacom18 is likely to continue to host shows with Bollywood celebrities,
which will further add to costs. Colors is starting with Bigg Boss 5 for the
festive season, which will be hosted by two Bollywood celebrities (Salman
Khan and Sanjay Dutt).
Q TV18 is likely to launch a few HD channels in FY12 as well.
Q Planned launch of history channel – AETN18.
We are 30-38% below consensus in our net profit estimates for FY12-13E.
We lower our price target from Rs130 to Rs60 as we lower our earnings
estimates for FY12-13E. We now value TV18 at 12x FY13E target EBITDA
multiple (20% discount to Zee as well as its historical trading average) versus
DCF earlier.
Table -- Price target derivation
FY13E target EV / EBITDA multiple 12x
FY13 EBITDA 2,403
Implied EV 28,933
Less: net debt 7,314
Implied equity value 21,619
Number of shares 362
Value per share 60
Source: UBS estimates
Q TV18 Broadcast
IBN18 was incorporated in June 2005 as Global Broadcast News and started
commercial operations in December 2005. IBN18 operates news channels CNN
IBN and IBN7. It is a subsidiary of Network18 Group, a media conglomerate in
India. IBN18 has a 50:50 JV with Viacom named Viacom18, which operates
Colors, MTV, VH1 and Nickelodeon. IBN18 also operates regional (Marathi)
news channel, IBN Lokmat, under a 50:50 JV with Lokmat Group (IBN
Lokmat). IBN18 acquired the business news channels (CNBC TV18 and CNBC
Awaaz) from TV18 in a group restructuring in July 2010.
Q Statement of Risk
We believe the key risks for TV18 are: 1) intense competition in most of its
broadcasting genres, especially the Hindi GEC; 2) heavy reliance on advertising
revenue; and 3) regulatory risk, as the news segment of the Indian broadcasting
industry is exposed to significant regulation on up-linking and ownership
No comments:
Post a Comment