Network 18 Fincap
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs651
Current market price: Rs476
Striking the right(s) note
Key points
News businesses to flourish: Network 18 Fincap (Network 18) controls the front-line business channels CNBC-TV18 and Awaaz, and the fast growing general news channels CNN-IBN and IBN 7. With the digitalisation of cable and advent of DTH platform, the subscription revenues would substantially boost the profitability of the group. Also, Awaaz, CNN-IBN and IBN 7 have shown good viewership gains and should drive the growth as they mature over the coming years.
Web properties to add tremendous value: Network 18 through its associate companies Television Eighteen India (TV18) and Global Broadcast News (GBN; together the two hold 100% in Web18) owns several web properties like moneycontrol.com, poweryourtrade.com and yatra.com among others, covering the news, e-transaction, travel, recruitment, shopping and e-ticketing genres. It has added many new web properties over the last year and started spending heavily on enhancing these sites and popularising them.
Taking big steps in entertainment: Through GBN it has entered into an alliance with Viacom Inc to launch a Hindi general entertainment channel. The alliance also gives it part ownership of MTV India, VH1 and Nickelodeon. The group’s movie business would derive synergies from Viacom Inc’s world-famous studios.
Group builds war chest for growth: Sensing the opportunities provided by the booming Indian media & entertainment industry and allied sectors, the TV18 group is building a war chest for exponential growth. While TV18 has raised Rs200 crore through a QIP, Network 18 proposes to raise a similar amount through a rights issue of partly convertible preferential shares. GBN aims to raise $200 million through an overseas offering while its board members have approved a plan to raise a debt of Rs1,500 crore. We believe with all these funds the TV18 group aims to become one of the big wigs of the Indian media and entertainment business.
Rights issue adds Rs133.6 per share to value: The company proposes to raise Rs200 crore via a rights issue of 5% partly convertible cumulative preference shares (PCCPS). It will offer one PCCPS for every five equity shares held. Our calculations suggest that the rights add Rs133.6 to the value of each existing equity share and make the Network 18 stock even more attractive.
Valuations suggest a 37% upside: Our valuation of the Network 18 scrip based on its holdings gives us a value of Rs517.8 per share before the rights issue. The rights issue adds Rs133.6 to the price of the existing float, giving us a fair value of Rs651 for the scrip and indicating a good 37% upside from the current market price of Rs475.5. We initiate a Buy recommendation on the stock with price target of Rs651.
Network 18 Fincap: Sharekhan Stock Idea dated June 20, 2007