TV Today: Buy

An investment can be considered in the stock of TV Today. The stock, at the current market price of Rs 163, trades at a reasonable valuation, relative to other media stocks, of about 19 times its estimated FY-09 earnings per share. With Aaj Tak consolidating its position as the leading Hindi news channel, advertising revenues are likely to remain buoyant. Subscription income may become a more significant revenue stream in the long term, with Aaj Tak likely to go on “pay” mode.

The merger with the group’s radio business will also present a new revenue stream, although it is unlikely to make a contribution to profits in the near term.

The company’s performance has been impressive in the first half of the year, reporting a three-fold rise in profits, led by buoyant advertising revenues.
Aaj Tak leads the way

Aaj Tak has secured its market share of 22 per cent, even as more than ten channels jostle for space in the Hindi news genre.

Its market share has given it the leeway to effect advertising rate hikes, though viewership gets increasingly fragmented. Income from advertising has so far been the chief source of revenues as all its channels have been free-to-air.

The weakness of other channels in its network has, however, been a drag on its profitability. Headlines Today has been a laggard in the English news channel space with its 8-9 per cent market share, while the other more recent channels have not made a significant mark. This has moderated the valuations of the stock.
Fresh revenue streams

However, there could be an upside to revenues and earnings as and when Aaj Tak becomes a pay channel. The management says it is in an advanced stage of negotiations with distributors and expects the channel to become a paid one by the end of the quarter. We do not expect this decision to have a significant impact on its advertising income in the near-term. As the progress of CAS is rather slow, the viewership numbers are likely to remain largely intact.

Additionally, subscription revenues will also get a boost from international operations; Aaj Tak is now being aired in Europe and the UK. However, unless the move to go pay fructifies, subscription revenue is likely to contribute less than 10 per cent of the topline in the near-term.
Tuning into radio

With the acquisition of the group’s radio broadcasting business, TV Today is making a move beyond television. “Radio Today” has licences to operate in Delhi, Mumbai, Calcutta, Shimla, Amritsar, Patiala and Jodhpur. Being a fairly late entrant in these markets, Radio Today hopes to capture advertisers’ attention by targeting exclusively women through its station “Meow 104.8 FM”, currently running in the metros. Only 30 per cent of the channel’s programming in the metros will be music-based, the rest will be talk-based. This will also limit the costs of music acquisition, which can be quite steep. The management expects to break-even in the next two-three years, as it has lower operating expenses than its peers. It acquired its seven licences at a fairly low cost of Rs 30 crore, compared to anywhere between Rs 55 and Rs 80 crore paid by some of its peers.

The company also intends to participate in the next round of bidding for licences later this month. While it has significant resources at its disposal, it has however, not been an aggressive bidder in the past.

Overall, the radio business, being at a nascent stage, is likely to provide an additional revenue stream to the business, but might not contribute to profits in the medium term. But further attempts by TV Today to widen the scope of its operations beyond television are likely to help the stock command better valuations.