UBS: TV18 Broadcast- Play on subscription growth

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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 42%
YTD due to a weak FY12 advertising outlook, concerns about the high leverage,
and disappointing Q1 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/FY13
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.

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UBS Mid-Caps Strategy - What to Buy? �� Oct 2011 Update