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UBS Investment Research
TV18 Broadcast
Strong execution—Colors back to No. 2
[ EXTRACT]
Competition remains high; its Colors channel is back to #2
Competition among the Hindi GECs remains high. However, Sony dropped to No. 3 on
the week ended 8 October (it was No. 2 for the prior seven weeks). Colors regained its
No. 2 position with its new show Big Boss 5 (started airing on 2 October), in line with
our expectations. Apart from Big Boss 5, Colors has shifted three of its prime-time
shows to afternoon time slots and moved a weekend show to a weekday prime-time slot.
Hindi movie channel launch deferred
TV18 has deferred its Hindi movie channel launch to FY13, and announced the launch
of a comedy channel and another for young audiences in the next three months. It
launched a history channel on 9 October in six languages with Bollywood celebrity
Salman Khan as a brand ambassador. We maintain our earnings estimates as we expect
TV18’s margins to decline from the new launches and a weak advertising outlook for
FY12. We estimate a 4% advertising revenue increase in FY12 for TV18’s existing
entertainment channels (including Colors).
TV18 benefits from subscription growth
Subscription revenue contributes 12% to TV18's revenue, which is below industry
average (20%). We expect this to increase to 20% by FY15 as most TV18 channels are
among the top three in their respective genres. We estimate subscription revenue will
post a 39% FY11-15 CAGR driven by: 1) a rapidly-expanding digital subscriber base
led by voluntary digitisation (the recently-approved mandatory digitisation should
benefit it further); and 2) distribution partnership with Sun TV.
Valuation: maintain Buy; Rs60.00 price target
We value TV18 at 12x FY13E EBITDA, a 20% discount to its historical trading
average.
Takeaways from our meeting with Raghav Bahl
The following are takeaways from our meeting.
TV18 is facing weakness in its advertising outlook at the Hindi GEC level
(Colors), while its news channels remain relatively strong. Management
forecasts its entertainment channels’ advertising revenue growth at less than
10% in FY12 (its previous guidance was 15%).
Subscription revenue growth is on track and management expects it to grow
to 14% of revenue in FY12 (Rs1.9-2bn). Management also estimates
subscription revenue will increase from 12% of revenue in FY11 to around
30% over the next five years.
Net debt should not increase beyond Rs8bn (Rs6.7bn in Q1 FY12) as
Viacom18 (its joint venture with Viacom) would need more debt for its
channel launches. The launch of its Hindi movie channel has been deferred.
Its existing TV channels could report an EBITDA margin expansion in FY12.
However, losses from potential channel launches should impact its margins.
In the next five years, TV18 plans to evaluate its channel launches in the
following genres: Hindi movie channel (expected launch in FY13), a few HD
channels, and its regional channels (including business and general news
channels).
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.
Statement of Risk
We believe the key risks for TV18 are: 1) intense competition in most of its
broadcasting genres, especially the Hindi general entertainment channels
(GECs); 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
Strong execution—Colors back to No. 2
[ EXTRACT]
Competition remains high; its Colors channel is back to #2
Competition among the Hindi GECs remains high. However, Sony dropped to No. 3 on
the week ended 8 October (it was No. 2 for the prior seven weeks). Colors regained its
No. 2 position with its new show Big Boss 5 (started airing on 2 October), in line with
our expectations. Apart from Big Boss 5, Colors has shifted three of its prime-time
shows to afternoon time slots and moved a weekend show to a weekday prime-time slot.
Hindi movie channel launch deferred
TV18 has deferred its Hindi movie channel launch to FY13, and announced the launch
of a comedy channel and another for young audiences in the next three months. It
launched a history channel on 9 October in six languages with Bollywood celebrity
Salman Khan as a brand ambassador. We maintain our earnings estimates as we expect
TV18’s margins to decline from the new launches and a weak advertising outlook for
FY12. We estimate a 4% advertising revenue increase in FY12 for TV18’s existing
entertainment channels (including Colors).
TV18 benefits from subscription growth
Subscription revenue contributes 12% to TV18's revenue, which is below industry
average (20%). We expect this to increase to 20% by FY15 as most TV18 channels are
among the top three in their respective genres. We estimate subscription revenue will
post a 39% FY11-15 CAGR driven by: 1) a rapidly-expanding digital subscriber base
led by voluntary digitisation (the recently-approved mandatory digitisation should
benefit it further); and 2) distribution partnership with Sun TV.
Valuation: maintain Buy; Rs60.00 price target
We value TV18 at 12x FY13E EBITDA, a 20% discount to its historical trading
average.
Takeaways from our meeting with Raghav Bahl
The following are takeaways from our meeting.
TV18 is facing weakness in its advertising outlook at the Hindi GEC level
(Colors), while its news channels remain relatively strong. Management
forecasts its entertainment channels’ advertising revenue growth at less than
10% in FY12 (its previous guidance was 15%).
Subscription revenue growth is on track and management expects it to grow
to 14% of revenue in FY12 (Rs1.9-2bn). Management also estimates
subscription revenue will increase from 12% of revenue in FY11 to around
30% over the next five years.
Net debt should not increase beyond Rs8bn (Rs6.7bn in Q1 FY12) as
Viacom18 (its joint venture with Viacom) would need more debt for its
channel launches. The launch of its Hindi movie channel has been deferred.
Its existing TV channels could report an EBITDA margin expansion in FY12.
However, losses from potential channel launches should impact its margins.
In the next five years, TV18 plans to evaluate its channel launches in the
following genres: Hindi movie channel (expected launch in FY13), a few HD
channels, and its regional channels (including business and general news
channels).
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.
Statement of Risk
We believe the key risks for TV18 are: 1) intense competition in most of its
broadcasting genres, especially the Hindi general entertainment channels
(GECs); 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.
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