Initiating Coverage - TV18 Broadcast (Hold): Growth in sight; execution remains the key... TV18, the undisputed market leader in business news and dominant player in the Hindi GEC space, has further cemented its position in the Indian broadcasting landscape with the recent acquisition of regional channels of ETV, which augments its portfolio of channels to 26. The formation of distribution company Indiacast has significantly increased its bargaining power, which has started to reflect in the turnaround witnessed in net distribution income. Led by the digitisation drive and bouquet distribution strategy through Indiacast, we expect the net distribution income to grow from | 15.7 crore in FY13 to | 236 crore in FY15. Consolidated revenue and EBITDA are expected to post 10.4% and 63.9% CAGR over FY13-15E, respectively. The company is trading at a significant discount to its peers Zee Entertainment and Sun TV on the sales multiples owing to a significantly lower margin profile. The benefits that would accrue to TV18 from digitization would be partly diluted if the twelve minute ad cap regulation gets implemented in the near term. Any relaxation on the said ruling remains an upside risk to our valuations. We have valued the stock using DCF methodology to arrive at a target price of | 18. We initiate coverage on TV18 with a HOLD rating Net distribution income to provide boost… The lack of a bouquet approach to market its channels and lower advertisement revenue for news channels has plagued TV18’s revenue, which considerably lags that of its peers. However, the net distribution income is expected to jump from | 15.7 crore in FY13 to | 236 crore in FY15E owing to (1) Acquisition of ETV’s regional channels and formation of Indiacast, which would bundle TV18’s flagship channels with ETV’s regional channels along with UTV Disney channels, (2) Digitisation drive, which would enable its flagship channels to command higher subscription revenue owing to their leadership and brand equity. Profitability to witness massive turnaround… The EBITDA is expected to more than double to | 300.9 crore by FY15E, led by higher net distribution revenue. Moreover, the overall interest burden would decline from | 143.2 crore in FY13 to | 96.2 crore by FY15 due to debt repayment post the recent rights issue. Margins to expand significantly! So will MCap/sales!!! As compared to ZEEL, TV18 is trading at a premium in terms of PE (60%) and a discount in terms of MCap/sales (154%) owing to its low margin profile. The benefits that would accrue to TV18 from digitization would be partly diluted if the twelve minute ad cap regulation gets implemented in the near term. Any relaxation on the ruling remains an upside risk to our valuations. We have valued the stock using DCF methodology to arrive at a target price of | 18. We initiate coverage on TV18 with a HOLD rating.
Posted on: Wed, 04 Sep 2013 08:27:17 +0000
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