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TV18 BROADCAST
PRICE: RS.36 RECOMMENDATION: REDUCE
TARGET PRICE: RS.39 FY12E P/E: 38.2X
q Continued Cheers for a debt-free TV18: With 7.5% gains in yesterday's trade,
TV18 Broadcast Ltd. (TV18) now trades within striking distance of our fair value
estimate (Rs 39). We believe the benefits from likelihood of a stronger balance
sheet are well priced in at this stage, and upsides are limited. Upsides are also
well-capped by the upper band of the impending rights issue (Rs 40). At CMP,
TV18 Broadcast stock prices in almost near-perfect valuations for the resultant
entity (as per our assumptions and estimates).
q Margin of safety low: Our fair value estimate has provided for 2.5x EV/ Sales
for TV18 (current operations), and 2.0x EV/ Sales for (assumed sales of) acquired
entities. The valuations we have ascribed to TV18 Broadcast (current operations)
are clearly higher than what the market has thought them worth, in the near
past. Further, we believe there may be downsides to our assumptions of sales of
the acquired entities. Lastly, there may be downside to our assumptions on the
extent of dilution (our present calculations account for dilution at the highest permissible
price). As such, the, margin of safety is somewhat low, considering upside
of 8% .
q Downgrade to REDUCE: We downgrade the TV18 stock to REDUCE on the
back of significantly weaker risk-reward profile than our preferred stocks in our
media coverage universe. We would be sellers into rallies, and would reconsider
our recommendation on obtaining greater clarity on financials of acquired entities,
or upon 10%-15% decline in the stock price.
q Valuation and Risks: We continue to see fair value of TV18 Broadcast at Rs 39/
share. Upside risks to our recommendation/ price target arises from changes in
deal structure/ rights issues, stronger than expected financials/ operations of
TV18 current operations/ disclosed financials of ETV acquired channels.
Computation of fair value post the announced transactions
(Rs mn) FY12E
Sales, TV18 Broadcast, Existing Operations (pre-announcement) 12,646
Valuation Used - EV/ Sales (FY12E) 2.5
Value of Operations 31614
Fair market capitalization (Net of net debt Rs.6700 mn) 24914
Shares Outstanding (current structure) 362
Fair Value/ Share (before announcements made yesterday) 69
Post - Rights Issue
Shares Issued (assuming price of Rs 40, amont Rs 27 Bn) 675
Total Shares Outstanding (post dilution) 1037
Value of Operations 31614
Fair Market Capitalization (adding net cash Rs.20.3 bn from rights issue) 51914
Fair Value/ Share (post rights issue, before ETV transactions) 50
Post Acquisition of ETV channels
Fair Value of Operations (TV18 present operations) 31614
Sales, ETV Total (not provided, assumed) 7000
Sales, ETV stake bought out by TV18 (assumed at 60% of total ETV sales ) 4200
Fair EV/ Sales, Acquired Stakes of Channels 2
Fair Value, Acquired Entities 8400
Fair Values, Operations Post restructuring (equals fair market cap) 40014
Shares outstanding post rights issue 1037
Fair Market Capitalization (post acquisition of ETV channels, post rights issue) 40014
Fair Value/ Share. Post restructuring (Target price) 39
Source: Kotak Securities - Private Client Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TV18 BROADCAST
PRICE: RS.36 RECOMMENDATION: REDUCE
TARGET PRICE: RS.39 FY12E P/E: 38.2X
q Continued Cheers for a debt-free TV18: With 7.5% gains in yesterday's trade,
TV18 Broadcast Ltd. (TV18) now trades within striking distance of our fair value
estimate (Rs 39). We believe the benefits from likelihood of a stronger balance
sheet are well priced in at this stage, and upsides are limited. Upsides are also
well-capped by the upper band of the impending rights issue (Rs 40). At CMP,
TV18 Broadcast stock prices in almost near-perfect valuations for the resultant
entity (as per our assumptions and estimates).
q Margin of safety low: Our fair value estimate has provided for 2.5x EV/ Sales
for TV18 (current operations), and 2.0x EV/ Sales for (assumed sales of) acquired
entities. The valuations we have ascribed to TV18 Broadcast (current operations)
are clearly higher than what the market has thought them worth, in the near
past. Further, we believe there may be downsides to our assumptions of sales of
the acquired entities. Lastly, there may be downside to our assumptions on the
extent of dilution (our present calculations account for dilution at the highest permissible
price). As such, the, margin of safety is somewhat low, considering upside
of 8% .
q Downgrade to REDUCE: We downgrade the TV18 stock to REDUCE on the
back of significantly weaker risk-reward profile than our preferred stocks in our
media coverage universe. We would be sellers into rallies, and would reconsider
our recommendation on obtaining greater clarity on financials of acquired entities,
or upon 10%-15% decline in the stock price.
q Valuation and Risks: We continue to see fair value of TV18 Broadcast at Rs 39/
share. Upside risks to our recommendation/ price target arises from changes in
deal structure/ rights issues, stronger than expected financials/ operations of
TV18 current operations/ disclosed financials of ETV acquired channels.
Computation of fair value post the announced transactions
(Rs mn) FY12E
Sales, TV18 Broadcast, Existing Operations (pre-announcement) 12,646
Valuation Used - EV/ Sales (FY12E) 2.5
Value of Operations 31614
Fair market capitalization (Net of net debt Rs.6700 mn) 24914
Shares Outstanding (current structure) 362
Fair Value/ Share (before announcements made yesterday) 69
Post - Rights Issue
Shares Issued (assuming price of Rs 40, amont Rs 27 Bn) 675
Total Shares Outstanding (post dilution) 1037
Value of Operations 31614
Fair Market Capitalization (adding net cash Rs.20.3 bn from rights issue) 51914
Fair Value/ Share (post rights issue, before ETV transactions) 50
Post Acquisition of ETV channels
Fair Value of Operations (TV18 present operations) 31614
Sales, ETV Total (not provided, assumed) 7000
Sales, ETV stake bought out by TV18 (assumed at 60% of total ETV sales ) 4200
Fair EV/ Sales, Acquired Stakes of Channels 2
Fair Value, Acquired Entities 8400
Fair Values, Operations Post restructuring (equals fair market cap) 40014
Shares outstanding post rights issue 1037
Fair Market Capitalization (post acquisition of ETV channels, post rights issue) 40014
Fair Value/ Share. Post restructuring (Target price) 39
Source: Kotak Securities - Private Client Research
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