TV Today -Employee costs rise, but ad growth continues… :: ICICI Securities, link

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Employee costs rise, but ad growth continues… • Revenue growth of 21.7% YoY at | 111.3 crore was lower than our
expectation of | 108.2 crore. The ad growth remained better than
expectations with viewer stickiness enjoyed by the channels.
• The EBITDA came in at | 23.5 crore vs. our expectation of | 35.2
crore, down 4.5% YoY due to higher than expected employee
expenses as several new journalists were brought on board.
• The company reported a PAT of | 13.2 crore (vs. expectation of | 19.8
crore), lower due to the EBITDA being lower than expected.
Aaj Tak No. 1 Hindi News channel since decades, Strong ad growth……
TV Today with its flagship channel Aaj Tak has been able to maintain its
dominant position in the fiercely competitive Hindi news segment for
over a decade. The news segment, directly targeting “decision makers” in
the family, enjoys a good portion of the advertisement share, which is
expected to rise even further as literacy and income levels rise. The ad
revenues in the quarter have been higher than the industry due to viewer
stickiness towards news channels hence helping the company clock
22.7% YoY growth in its TV broadcasting revenues. We expect the
company to post 17.5% CAGR over FY14-16E to | 468.9 crore in its TV ad
revenues, primarily led by rate hikes. However, the ruling of 12 minute ad
cap if implemented will remain a downside risk to our estimates. Even in
the radio sector, the company is expected to participate in the Phase III
auctions to augment its capacity and we expect it to post a 12.5% ad
revenue CAGR in radio over FY14-16E to | 19.5 crore.
Subscription revenues to remain stable, high operating leverage to kick in
With digitisation in phase III and IV cities, TV Today would be able to
better monetise its reach as it enjoys a far stronger position in the smaller
cities and towns in the Hindi speaking belt. However, with a delay in shift
towards digitisation, we have built in a nominal growth of 7.2% in this
revenue stream. We expect the subscription revenues to reach | 38.2
crore by FY16E from | 33.2 crore in FY14. The fixed nature of operational
cost provides high operating leverage, which is already reflected in 216%
growth in EBITDA with 24.6% revenue growth in FY14. Going ahead, with
a reduction in carriage costs, we expect EBITDA and PAT CAGR (FY14-
16E) of 30.7% and 33.7% to | 186.6 and | 109.6 crore, respectively.
Employee expenses increases, some increase to be offset by ad growth
The company has hired some renowned journalists namely Karan Thapar,
Rajdeep Sardesai, Shekhar Gupta which will lead to the employee
expenses continuing the run rate in the quarter. Though the journalists
will help the channel Headlines Today garner higher eyeballs and hence
augment its advertisement revenue, we believe it will still take some time
for the employee costs to be totally set-off by the higher ad revenues.
Enjoys the No-1 position since decades, Maintian BUY
Digitisation would lead to declining carriage cost & uptick in subscription
revenue as the distribution industry shifts to cost per subscriber (CPS)
model. Carriage cost forming about 30-35% of revenue is expected to
decline at an annual rate of 10% over the next two years. Though the
employee expenses has led to some trimming of EBITDA, we expect the
company to post a 30.7% EBITDA CAGR (FY14-16E) to | 186.6 crore. With
a revival in EBITDA margins, valuation multiples are expected to inch up
to historical levels. We to value it at 15x FY16E EPS of | 18.4 to arrive at a
revised target price of | 276, maintaining Buy.

LINK
http://content.icicidirect.com/mailimages/IDirect_TVToday_CompanyUpdate_Nov14.pdf