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TV18 BROADCAST
PRICE: RS.35 RECOMMENDATION: BUY
TARGET PRICE: RS.65 FY13E P/E: 36.4X
q TV18 Broadcast (TV18) has declined 18% since 2QFY11 results, and 61%
YTD, underperforming our media coverage universe by 38%. We believe
key reasons for the same are: 1/ Unsteady cues in key channels Colors
(Hindi GEC) and CNBC - TV 18 (business news), 2/ top management departures,
3/ debt-heavy balance sheet of the company, 4/ weak results,
partly on account of loss-making movie operations of the company.
q While the concerns are justified, the stock has been beaten down to 1.4x
EV/ Sales FY12E, deviating significantly from valuations of ZEEL (3.1x EV/
Sales), and reducing the gap from news broadcasters' valuations. This,
we believe, is unjustified: 1/ Over 75% of TV18 Broadcast revenues is
brought in from more attractive, potentially high subscription streams
which include business news and entertainment, 2/ the competitive position
of the company's key channels, while unsteady in the recent past,
does not merit a downgrade of long-term revenue/ earnings view to
non-subscription earning genres (example: news).
q The presence of TV18 Broadcast in some of the most attractive spaces in
the broadcasting space (business news, Hindi GEC), coupled with relatively
low subscription revenues generated by the company, as well as
significant carriage and placement fees paid out to MSOs expose TV18 favorably
to the recent ordinance mandating digitization in India.
q While debt levels at the company's and parent's balance sheet are a matter
of concern (TV18’s FY12 EBITDA shall likely be fully consumed by interest
payments), we think the company shall be able to access capital -
either via stake sale in Viacom 18, or via closure/ rationalization of other
operations. Network18 is in discussions to make a stake sale in its ecommerce
ventures (Homeshop 18), which may reduce debt burden significantly.
q We believe the discount to fair value (Rs 65/ share, FY13E) reflects a high
degree of pessimism, and is likely to be challenged significantly if: 1/ the
management shows sufficient resolve and urgency in tackling issues
that TV18 faces, 2/ the digitization mandate gathers greater credibility in
investors' minds. Reiterate BUY, with a price target of Rs 65 (unchanged).
q Key risks to our investment view include: 1/ competitive risks, 2/ inability
of the management to make timely decisions on loss-making businesses,
3/ lack of earnings visibility.
Sharp correction provides opportunity
TV18 Broadcast has declined 18% since our last update, we believe, on the back of
weakening competitive position of company's key channels (CNBC-TV18, Colors),
and resignation of the company's CEO, announced soon after the results. YTD, the
stock has declined 61% - the largest decline in our media coverage universe, which
has declined (ex-TV18) 23%, in line with the broader markets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TV18 BROADCAST
PRICE: RS.35 RECOMMENDATION: BUY
TARGET PRICE: RS.65 FY13E P/E: 36.4X
q TV18 Broadcast (TV18) has declined 18% since 2QFY11 results, and 61%
YTD, underperforming our media coverage universe by 38%. We believe
key reasons for the same are: 1/ Unsteady cues in key channels Colors
(Hindi GEC) and CNBC - TV 18 (business news), 2/ top management departures,
3/ debt-heavy balance sheet of the company, 4/ weak results,
partly on account of loss-making movie operations of the company.
q While the concerns are justified, the stock has been beaten down to 1.4x
EV/ Sales FY12E, deviating significantly from valuations of ZEEL (3.1x EV/
Sales), and reducing the gap from news broadcasters' valuations. This,
we believe, is unjustified: 1/ Over 75% of TV18 Broadcast revenues is
brought in from more attractive, potentially high subscription streams
which include business news and entertainment, 2/ the competitive position
of the company's key channels, while unsteady in the recent past,
does not merit a downgrade of long-term revenue/ earnings view to
non-subscription earning genres (example: news).
q The presence of TV18 Broadcast in some of the most attractive spaces in
the broadcasting space (business news, Hindi GEC), coupled with relatively
low subscription revenues generated by the company, as well as
significant carriage and placement fees paid out to MSOs expose TV18 favorably
to the recent ordinance mandating digitization in India.
q While debt levels at the company's and parent's balance sheet are a matter
of concern (TV18’s FY12 EBITDA shall likely be fully consumed by interest
payments), we think the company shall be able to access capital -
either via stake sale in Viacom 18, or via closure/ rationalization of other
operations. Network18 is in discussions to make a stake sale in its ecommerce
ventures (Homeshop 18), which may reduce debt burden significantly.
q We believe the discount to fair value (Rs 65/ share, FY13E) reflects a high
degree of pessimism, and is likely to be challenged significantly if: 1/ the
management shows sufficient resolve and urgency in tackling issues
that TV18 faces, 2/ the digitization mandate gathers greater credibility in
investors' minds. Reiterate BUY, with a price target of Rs 65 (unchanged).
q Key risks to our investment view include: 1/ competitive risks, 2/ inability
of the management to make timely decisions on loss-making businesses,
3/ lack of earnings visibility.
Sharp correction provides opportunity
TV18 Broadcast has declined 18% since our last update, we believe, on the back of
weakening competitive position of company's key channels (CNBC-TV18, Colors),
and resignation of the company's CEO, announced soon after the results. YTD, the
stock has declined 61% - the largest decline in our media coverage universe, which
has declined (ex-TV18) 23%, in line with the broader markets.
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