Television Eighteen

Television Eighteen India (TV 18) has delivered a disappointing set of results in the April-June quarter. While the core news operations, led by CNBC TV 18, remained healthy, sustained losses in the Web and newswire operations have resulted in the frontline media conglomerate reporting a quarterly loss on a consolidated basis.

While the stock has corrected more than 60 per cent from its peak, we expect the underperformance to continue in the near-term, as initial losses from its foray into print, launch of the new regional business channel and new additions to its web properties are likely to further erode profits over the next year.

Impact of fresh competition (UTVi and the business channel planned by the Times Group) on the advertising revenues of its core business news operations would also have to be keenly monitored. Shareholders with a three-five year perspective can hold on to the stock, as it offers exposure to promising businesses. However, valuation remains expensive, with the stock (Rs 217) trading at 50 times its trailing four quarters’ stand-alone earnings per share.

Those who still have a significant exposure to the stock can consider switching a part of their holdings to stocks with brighter near-term prospects.
Disappointing quarter

Widening losses in its Internet operations has taken the sheen off TV 18’s consolidated financials in the April-June quarter, with the company turning in a net loss of Rs 9 crore against a marginal profit in the corresponding previous quarter.

Revenue growth of its core news operations ‘moderated’ to 30 per cent, from the over 50 per cent levels registered in recent years. Operating margins, however, expanded by about 300 basis points. TV 18’s Web operations recorded a 41 per cent growth in revenues year-on-year, on the back of growing web portal additions . The business, dominated by leading financial Web site moneycontrol.com, posted an operational loss of Rs 5.6 crore, however, on a revenue base of Rs 13 crore during the quarter.

With another portal, in.com(along the lines of Rediff and Sify), lined up for launch in the next couple of months, the business is expected to break even only in FY-10.

The newswire business delivered a five-fold growth in revenues, even as losses remained flat at Rs 3.8 crore. The management expects the business to break even in a year’s time, once corporates that have the newswire on a free-trial mode begin to pay for content.

Overall, the strength of the news operations did help the company report an operating profit margin of 17 per cent for the quarter. However, a substantial jump in interest costs completely eroded profits. The losses would have been more pronounced, had it not been for a healthy contribution from other income.

. With operational costs mounting on the back of increasing competition in the business news channel space and the threat of a slowdown in advertising looming, servicing a higher interest outgo could be a challenge.
On investment mode

TV 18 has lined up aggressive expansion plans. The company has allocated Rs 100 crore to fund its print foray and plans to launch a Hindi business daily ( Tie-up with Jagran Prakashan), an English business Magazine (tie-up with Forbes) and an English business daily as well.

The Hindi business daily is expected to be launched by the end of the year. While existing print players such as The Economic Times and Business Standard have launched Hindi editions in cities such as Delhi and Mumbai, TV 18 is expected to rollout editions on a pan-India basis.

Given TV 18’s dominance in business news, the strengths of its partners and the access to significant publishing facilities, courtesy the Infomedia acquisition, the print foray appears promising. However, the business will have a long gestation period.

TV 18 also intends to invest Rs 30 crore in launching a Gujarati business channel, hoping to duplicate the success of Awaaz and consolidate its leadership position in the business news channel genre. About Rs 50 crore will be pumped into the web business as well.

While each of these businesses appear promising, it could take at least two-three years for these new initiatives to pay off.

The possibility of higher operational costs in an intense competitive environment in its core operations also increases the risk of the loss-making period prolonging. and prolong the loss-making period.