Television Eighteen

Shareholders can avoid subscribing to the rights offer of Television Eighteen (TV18) considering the business uncertainties and relatively expensive valuation that the offer is being made at. The company has several properties across broadcast and Internet that are leaders in their genre.

TV18 is offering one share for every two held in this rights issue, priced at Rs 84. Although this is at a 14 per cent discount to the current market price, the valuations are still expensive. At the offer price, the enterprise value-to-sales (EV/Sales) multiple of TV18 would be four times its 2008-09 sales, which is much higher than a profit-making Zee News or its loss-making peer, NDTV.

Advertising volumes and pricing — the key revenue drivers for the media industry — are stabilising, but are yet to return to high growth levels. Given that TV18’s businesses are highly reliant on advertising revenues, most of its divisions are currently reporting operating losses.

The company reported an operating loss in 2008-09 with the picture improving to a 3 per cent positive operating profit margin in its June quarter financials. The entry of newer business channels may also pose a threat to market share over the long term.

News operations, the key

TV18 owns two of the leading business channels in the country — CNBC TV18 and CNBC Awaaz — which are leaders in their respective genres in both the English and Hindi languages. In Hindi especially, this is more pronounced as the market has CNBC Awaaz and Zee Business as the only players.

In the English business news space, there is competition, but CNBC-TV18 still maintains a considerable lead over the other channels. But recent TAM reports on viewership suggest that ET Now, a new launch, has managed considerable inroads; this has now become available on DTH platforms.

UTVi is reportedly tying up with Bloomberg TV and may also be able to offer competition, though not of the scale of ET Now. However, all the three competitors (including the second largest viewed NDTV Profit) have some way to go before they manage to edge out CNBC from its leadership position.

Revenues from this segment were down 25 per cent in the June quarter over last year. But with a revival in advertising in key segments such as Telecom and BFSI, as well as that from a spate of new IPOs and NFOs, the sector, as a whole, and TV18, in particular, may benefit.

Television advertising is estimated to grow by 12.2 per cent annually to Rs 15,000 crore by 2013, according to a recent report on media by PWC.

This would be one of the key reasons for investors to hold on to the stock apart from the fact that being a pay channel, subscription revenues may increase given that DTH subscribers are increasing rapidly and number over 11 million currently.
Web18 holds potential

Web 18 has many properties such as moneycontrol.com, in.com and indiaearnings.com that are among the top visited Web sites in India, with moneycontrol leading the way. The company also holds stakes in sites such as Yatra.com, a leading travel booking Web site.

Other sites such as in.com, though gaining hits, face considerable competition from Rediff, Indiatimes and Sify that offer a complete range of content, subscription and transaction-based services.

But this segment has been increasing contribution to revenues (14-15 per cent of revenues currently) and grew at eight per cent in FY-09 and even in the recent June quarter and has reduced operational losses.

Internet advertising is set to touch Rs 2,140 crore by 2013, growing at 27.9 per cent annually, according to a FICCI-KPMG media report.

The publishing foray with Forbes, where Rs 30 crore of the rights issue proceeds are set to be invested and Newswire18 which has reduced operational losses substantially are two additional segments to watch out for.
The offer

The company is looking to raise a little over Rs 504 crore from this issue. This is mainly to repay a part of its debt (Rs 300 crore) and the rest for investment in some of its divisions and general corporate purposes. For the year-ended March 2009, TV18 held over Rs 977 crore in the form of secured and unsecured loans from banks and public deposits. Despite the repayment of some loans, the debt level still appears high. It may come down to some extent if the Rs 164 crore that the company has in the form of cash and bank balances are used to for repayment.

The investors have the option of paying 25 per cent of the issue price on application, 35 per cent on the ‘first call’ and the balance 20 per cent and 20 per cent on the ‘second call’ and the ‘third call’ respectively.

via BL