Television Eighteen India: Hold

Through quick, successive moves in the print business, Television Eighteen India (TV 18) has added a missing link to its media value chain. With a presence that straddles television, Internet and soon print media, a demonstrated ability to strike the right partnerships to execute its plans, a leadership position in the electronic business news space and a clutch of Internet properties that hold potential for value unlocking, TV 18 remains the preferred stock in the media space.

Expensive valuations

But much of this is already captured in the stock’s current valuations, offering limited potential for strong upside in the near-term.

Adjusting for the valuation of its web properties (estimated at 15 times the likely FY-09 sales), the stock, at Rs 473, still trades at about 45 times its FY-09 earnings per share. This assumes significant growth rates for its existing businesses and success in new forays. But the company’s track record in execution inspires confidence, supporting our ‘hold’ recommendation.

However, TV 18 will remain in a heavy investment phase in the medium term. The print business has a longer gestation period than television and earnings could be impacted by losses from initial years; details are awaited on how the print business will be structured. Its flagship channel, CNBC TV 18, best known for its stock market focus, may suffer declines in viewership, should there be a change in investor sentiment.
Print plans in ink

TV 18’s long-expected foray into print has now been firmly inked. The Rs 178-crore acquisition of a 40 per cent stake in Infomedia India marked its entry into the segment. TV 18 intends to acquire a controlling stake in the company, by making an open offer to Infomedia’s shareholders for 20 per cent.

If the offer is not successful, TV 18 has the option to acquire an additional 13 per cent stake from existing promoters, ICICI Ventures.

The acquisition will provide the company access to the yellow pages directory business and, more interestingly, the special interest magazine segment, which includes magazines such as T3, Cricinfo, Overdrive and Better Interiors.

It will also provide it access to printing facilities. That would come in handy in publishing the English business magazine that TV 18 proposes to launch in 2008, in association with reputed business magazine Forbes Media.

This involves a content licensing arrangement and may extend to the introduction of other Forbes products, subject to regulatory approvals.

TV 18 also announced a simultaneous entry into the rapidly growing regional print market through a 50:50 joint venture with Jagran Prakashan, publishers of the leading regional newspaper — Dainik Jagran. Plans are on to launch a Hindi business newspaper in 2008, to be followed eventually by business newspapers in other regional languages.
Well-conceived strategy

The print business involves higher capex spends, requires an extensive distribution network, and a new player generally takes a longer period to penetrate the market and break-even compared with a new television channel, even if good content is taken as a given.

However, TV 18’s foray into the market appears, on first take, well conceived. The acquisition of Infomedia’s printing facilities, distribution network and a clutch of its brands may reduce time to market. TV18 also has strong partners in Forbes and Jagran Prakashan, which bring in their experience in print.

Secondly, it has entered the English business magazine segment, where there is less competition. In contrast, there are five-six players competing in the English business daily segment, some of them with considerable financial muscle. In the regional print segment, again, there is no existing business newspaper. TV 18 also has experience in Hindi business news, courtesy its Hindi business channel “Awaaz”.
Heavy investment phase

But TV 18’s recent forays are likely to require substantial investments over the medium term. Besides investing in the print business, it will have to continue to pump in money to improve the profitability of its recent acquisitions; Newswire 18 is still loss-making, while Infomedia’s earnings have been weighed down by declining margins.

Significant investments are also being made in Web 18, which operates web portals. This segment is not making money yet, although a series of acquisitions and new Web site launches has ensured a strong increase in revenues.
Value unlocking

Revenues from its Web operations in the first half of FY 08 were at Rs 21 crore, as against Rs 25 crore in the whole of FY 07. The portals attempt to get their revenues from not just advertising but also subscription, which brings some stability to the business model.

However, the losses from the Web business are a drag on profitability. TV 18’s operations on a stand-alone basis enjoyed margins of over 40 per cent in the first half compared to about 26 per cent on a consolidated basis. TV 18 intends to ultimately list the web business and unlock value; this is already captured in the current valuations for the stock.

But the timing of this event is uncertain and a significant delay in listing the subsidiary is a risk to the stock’s performance.