Edelweiss - TV Today

Edelweiss Research is bearish on TV Today Network and has maintained sell rating on the stock.

Edelweiss Research report on TV Today Network:

TV Today’s Q4FY07 results were in line with our expectations. Revenues for the quarter grew 20% Y-o-Y and 2.5% Q-o-Q to Rs 585 million. The growth in revenues was largely driven by the ad rate hike that the company had taken earlier this year and better utilizations on account of the World Cup and elections in UP. Subscription revenues from international markets and contribution from Dilli Aaj Tak also contributed to the revenue growth. As expected, EBITDA margins declined 394 bps Y-o-Y and 292 bps Q-o-Q due to higher employee expenses and higher carriage fee paid to the cable operators to carry the channel in the prime band. PAT margins correspondingly dropped 167 bps Y-o-Y and 368 bps Q-o-Q. For the full year, revenues grew 18.4% while EBITDA and PAT margins declined by 524bps and 94 bps, respectively.

Inability to build another growth driver other than Aaj Tak and consequent volatility in earnings remain a concern. Even though Aaj Tak has been able to maintain its leadership position, it has been consistently losing market share and is vulnerable to losing its leadership position. This, in turn, will adversely affect the revenue growth of TV Today. The plan to make Aaj Tak a pay channel has been deferred because of intense competition in the Hindi news space, especially given that most channels are free-to-air. Headlines Today has still been lagging behind in the English news genre even though the newcomers, CNN-IBN and Times Now, have surged ahead. So even though the stock trades at relatively cheaper valuations of 23.2x FY08E and 19.8x FY09E, we remain negative on the outlook of TV Today. We maintain our ‘SELL’ recommendation.

Highlights:

Excessive dependence on Aaj Tak due to inability to build a second growth driver remains a concern:

Inability to build another growth driver other than Aaj Tak and consequent volatility in earnings remain a concern. Even though Aaj Tak has been able to maintain its No. 1 position, it has been consistently losing market share and is vulnerable to losing its leadership position. This, in turn, will adversely affect the revenue growth of TV Today. The plan to make Aaj Tak a pay channel has been deferred because of intense competition in the Hindi news space, especially given that most channels are free-to-air. Headlines Today has still been lagging behind in the English news genre even though the newcomers, CNN-IBN and Times Now, have surged ahead in terms of viewership share. This excessive dependence on Aaj Tak has resulted in volatility in earnings in the past and puts at risk the future earnings as well.

Maintain ‘SELL' :

’We estimate that TV Today will make EPS of Rs 6.6 and Rs 7.7 in FY08 and FY09, respectively. The stock currently trades at P/E of 23.2x FY08E and 19.8x FY09E. While the stock is less expensively priced as compared to its peers, lack of growth drivers and volatility in earnings make it unattractive. We maintain our ‘SELL’ recommendation on the stock."