Viacom18 Media Private Limited

Home , Colors Kannada Cinema, Colors Marathi, Rishtey Cineplex

December 07, 2018

Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action1 (Rs. crore) (Rs. crore) Commercial Paper 500.0 500.0 [ICRA]A1+; Reaffirmed Short-term, Fund-based Bank 200.0 200.0 [ICRA]A1+; Reaffirmed Facilities Long-term / short-term, Fund-based [ICRA]AAA (Stable) / 1,325.0 1,325.0 / Non-fund Based Bank Facilities [ICRA]A1+ Reaffirmed Long-term / Short-term Unallocated [ICRA]AAA (Stable) / 85.7 85.7 [ICRA]A1+ Reaffirmed Total 2,110.7 2,110.7 * Instrument details are provided in Annexure-1

Rationale The ratings reaffirmation of Viacom18 Media Private Limited (Viacom18) favourably factors in the company’s strong parentage and strategic importance of the media businesses (under the umbrella of its parent, TV18 Broadcast Limited, TV18, rated [ICRA]AAA(Stable)/[ICRA]A1+) and TV18’s holding company, Network18 Media & Investments Limited, Network18 (rated [ICRA]AAA (Stable) / [ICRA]A1+) to Reliance Industries Limited (RIL). Independent Media Trust (IMT), of which RIL (rated [ICRA]AAA (Stable) / [ICRA]A1+ and Baa2 Stable by Moody’s Investors Service) is the sole beneficiary, holds a majority stake in Network18. The ratings continue to favourably factor in the company’s comfortable financial position characterised by a comfortable capital structure (0.5 time as on March 31, 2018), healthy profitability of its existing businesses, and adequate liquidity as reflected in considerable undrawn bank limits (almost 41% limits on an average remain unutilised). The ratings also favourably factor in the company’s diversified offerings across genres and the consistent leadership position of its Hindi general entertainment channel (GEC), Colors. The company’s strong and niche positioning in the youth, children’s and English entertainment genres through brands such as MTV, Nickelodeon, Comedy Central and Vh1, and the growing presence in the regional general entertainment (RGECs) space are also positive factors. Among the eight RGECs, it enjoys a dominant position in the Kannada GEC space and is one of the leaders in the Marathi GEC. The company’s flagship channel, Colors, continues to remain the most important revenue and profitability driver for the company. Nevertheless, ICRA draws comfort from the strong brand franchise of the channel coupled with the company’s healthy market share in terms of viewership ratings, which has supported healthy advertisement and subscription revenues. ICRA also takes comfort from the company’s efforts at diversification through scaling up rest of the businesses.

The ratings also factor in the risks inherent to the media and entertainment industry in terms of vulnerability of advertising revenue driven business profile to cyclicality in advertising spends by corporates and rising competitive intensity with an increase in the total number of channels in the mass content as well as niche segments. Further, the ratings factor in the inherently working capital-intensive nature of operations and the inherent volatility in the film production and distribution segment. Apart from one-time impact of demonetisation and introduction of the Goods and Services Tax (GST), significant investments in its new business segments such as its over-the-top (OTT) platform, VOOT, and new channel launches, have constrained its profitability over the past two fiscals as well as in H1 FY2018. The investments in the OTT platform are likely to continue, given the significant potential of the digital platform and the

1 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

potential synergies with Jio. The company’s ability to monetise the platform through a sustainable business model in the medium term, however, will be crucial as the new business remains in gestation. The above investments along with its Tamil GEC launch are likely to maintain pressure on Viacom18’s profitability during the current fiscal. The company’s ability to maintain its market position in genres where it is currently leading and improve its market share in other genres, along with higher subscription revenues through benefits from digitisation, will be crucial.

Outlook: Stable ICRA’s Stable outlook factors in the strong financial flexibility enjoyed by the company arising from its strong parentage. ICRA also notes the healthy presence of Viacom18 in the broadcast entertainment space and its strong business potential across the fast-growing digital media segment. The outlook may be revised to Negative in case of lower than envisaged support from the parent, or in case of weaker than expected operating performance, or any debt-funded acquisition or investments leading to material deterioration in cash flow indicators and debt-protection metrics.

Key rating drivers

Credit strengths Strong parentage of Viacom18 - With acquisition of additional 1% stake from Viacom Inc., Viacom18 became a subsidiary of TV18, holding 51% stake in Viacom18 with effect from March 01, 2018, and gained operational control over the JV. ICRA derives strong comfort from the parentage of Viacom18, with TV18 being a 51.16% subsidiary of Network18. RIL is the sole beneficiary of IMT, which holds a majority stake in Network18. RIL is India’s largest private sector enterprise with presence across the energy value chain apart from presence in retail, oil marketing and telecom segments.

Consistent leadership position of its Hindi GEC, Colors – Colors continues to maintain its leadership position as one of the top three players in the Hindi GEC genre, backed by differentiated content in the fiction as well as non-fiction categories.

Strong and niche positioning in children’s, youth and English entertainment spaces – The company has iconic brands in its portfolio, such as MTV, Comedy Central, VH1 and Nick, which has helped it carve a strong and niche positioning in the respective segments. Furthermore, the children’s genre has demonstrated healthy financial performance over the past four fiscals on the strength of its owned intellectual property rights (IPRs), maintaining its dominant position during the period.

Growing presence in RGECs helped diversify revenue base – The addition of five RGECs with effect from April 01, 2015 post-merger with Prism TV Private Limited has helped diversify the company’s revenues and provided it access to significant growth potential in the RGEC space. The company enjoys a dominant position in the Kannada GEC space and is among the leaders in the Marathi GEC space, which was achieved within a short span of time. Furthermore, the company has launched a Tamil GEC during Q4 FY2018, a market with high potential, along with its first regional movie channel, Colors Kannada Cinema, to expand its presence in the southern regional market.

Comfortable financial position – The company had a healthy capital structure (0.5 time) as on March 31, 2018, providing it significant flexibility to take on additional debt to support its investments. Furthermore, the profitability of the company’s existing business segments (more than a year old) remains strong, which has helped it fund its investments in the OTT space and new channel launches without significant incremental capital infusion.

Credit weaknesses One-time impact of demonetisation and GST – A sharp pullback in spends by advertisers due to demonetisation and GST, and subsequent slow recovery in advertisement spends adversely impacted revenues of the media and entertainment industry during FY2017 and FY2018. There has been recovery in the advertising spending with broadcasting business (ex-film business) growing at 13% YoY during Q2 FY2019. Further improvement in advertisement spends supported by macro-economic trends will be a critical revenue and profitability driver for the company.

Significant investments in OTT platform, new channel launches and RGEC portfolio has constrained performance – The company’s profitability during FY2017 and FY2018 was constrained by significant planned investments in its OTT platform, ‘VOOT’ and new channel launches—Rishtey Cineplex, a Hindi movie channel, and Colors Super, a second Kannada GEC. Further, during Q4 FY2018, the company launched Colors Tamil, and subsequently, Colors Kannada Cinema during Q2 FY2019, which are currently in gestation.

Flagship channel, Colors, remains significant driver; nevertheless, comfort derived from strong brand franchise of the channel – Despite diversification provided by the addition of the regional GEC portfolio, Colors continues to remain the most important revenue and profitability driver for the company. ICRA, nevertheless, derives comfort from the strong brand franchise of the channel and the company’s effort at diversification by scaling up the rest of its businesses.

Vulnerability of advertising revenues to economic slowdown, viewership trends and competition – The media and entertainment industry remains vulnerable to cyclicality in advertising spends by corporates. ICRA notes the rising competitive intensity with an increase in the total number of channels in the mass content and niche segments, which challenge Viacom18’s ability to retain its market share and by implication, its advertisement revenue share. Liquidity Position The profitability of Viacom18’s broadcasting business was comfortable and its fund flow from operations was positive in FY2018 as higher receivables and inventory were offset by better management of supplier credit. This resulted in lower incremental external borrowings for working capital. The company has unutilised bank lines, including both secured and unsecured, with an average utilisation of 41% in the 12 months leading up to September 2018, which provides adequate cushion. However, ICRA has not factored in any organic/inorganic expansion plans, which may require additional funding support. ICRA, moreover, derives significant comfort from the company’s strong parentage, which can help it meet any funding mismatch while providing considerable refinancing flexibility.

Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for Media Broadcasting Industry Impact of Parent or Group Support on an Issuer’s Credit Rating Parent/Group Company: TV18 Broadcast Limited (51.16% subsidiary of Network18). IMT, of which RIL is the sole beneficiary, holds a majority stake in Network18. Parent/Group Support ICRA expects Viacom18’s parent, TV18 Broadcast Limited (rated [ICRA]AAA (Stable)/[ICRA]A1+), to be willing to extend it financial support, should there be a need, given the high strategic importance that Viacom18 holds for the RIL Group. The analysis is based on standalone financials as consolidated numbers with its three subsidiaries, Viacom18 US Inc., Viacom18 Media (UK) Limited and Roptonal Limited, Cyprus and with its JV, Indiacast Media Distribution Private Consolidation / Standalone Limited, are unavailable. However, this does not make the standalone analysis less reliable, given that the said subsidiaries are not material to the parent’s operations and the JV is unlikely to require significant financial support from Viacom18.

About the company Incorporated in 1995, Viacom18 Media Private Limited, is a 50:50 JV between TV18 Broadcast Limited and Viacom Inc. Viacom18’s presence in the television broadcasting space is spread across the Hindi GEC space and niche genres such as youth, children’s and English entertainment spaces. In the Hindi GEC space, it operates channels such as ‘Colors’, ‘Colors HD’ and ‘Rishtey India’, while it is present in the English GEC segment through ‘Comedy Central’, Vh1 and ‘Colors Infinity’. In the youth genre, it has channels such as ‘MTV’ and ‘MTV Beats’; while in the children’s genre, its portfolio is represented by channels such as ‘Sonic’, ‘Nickelodeon’ and ‘Nick Jr’. The company also launched a Hindi movie channel, ‘Rishtey Cineplex’, in May 2016, and an OTT platform, ‘VOOT’, in March 2016. In addition, it also has 14 international channels in its portfolio for the Indian diaspora across the globe.

During September 2016, Viacom18 concluded the merger of Prism TV (a JV between Nickelodeon Asia Holdings Pte Ltd., a Viacom Inc. company, and TV18 Broadcast Limited) with itself, effective from April 01, 2015. This added five regional GECs—Colors Kannada, Colors Marathi, Colors Bangla, Colors Gujarati and Colors Oriya—to Viacom18’s portfolio. Furthermore, the company launched a second Kannada GEC, ‘Colors Super’, during July 2016. The company also launched its Tamil GEC, ‘Colors Tamil’, and its HD feed during February 2018. The company recently introduced a second movie channel and its first regional movie channel, ‘Colors Kannada Cinema’, in September 2018, taking the number of GECs to eight.

Viacom18 also enjoys a presence in the film production and distribution business through its film division, Viacom 18 Motion Pictures. In addition to domestic film production and distribution, the company is also the sole distributor of all Paramount films in the Indian subcontinent. IndiaCast Media Distribution Pvt. Ltd. (IndiaCast), a JV between Viacom18 and TV18, is a content asset monetisation company, which manages the distribution and monetisation of the company’s international business.

Key Financial Indicators (Audited) FY 2017 FY 2018

Operating Income (Rs. crore) 3,036.5 3,685.4 PAT (Rs. crore) 30.6 82.8 OPBDIT/ OI (%) 4.8% 5.7% RoCE (%) 5.3% 8.7%

Total Debt/ TNW (times) 0.6 0.5 Total Debt/ OPBDIT (times) 4.7 2.7 Interest coverage (times) 2.4 4.2 OI: Operating Income; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net-Worth (TNW) + Deferred Tax Liability - Capital Work - in Progress)

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years: Current Rating (FY2019) Chronology of Rating History for the past 3 years Date & Date & Date & Amount Rating Amount Rating in Rating in Rated in Outstanding FY2018 FY2017 (Rs. FY2016 (Rs. crore) crore) December March February November October - Type 2018 2018 2018 2017 2016 1 Commercial Short- 500.0 [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ Paper term - - Programme 2 Long-term Long- 0.0 - - - [ICRA]AA [ICRA]AA Loans term - (Stable) - Withdrawn (stable) 3 Fund-based Short- 200.0 [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ Facilities term - -

4 Fund-based / Short- 0.0 - - - - [ICRA]A1+ Non-fund term - - Based Facilities 5 Fund-based / Long- 1,325.0 [ICRA]AAA [ICRA]AAA [ICRA]AA [ICRA]AA [ICRA]AA Non-fund term / (Stable) / (Stable) / % / (Stable) / (Stable) / - - Based Short- [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ Facilities term 6 Long-term Long- 85.7 [ICRA]AAA [ICRA]AAA [ICRA]AA [ICRA]AA - /Short-term term / (Stable) / (Stable) / % / (Stable) / - - Unallocated Short- [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ term Note: ‘%’ denotes ‘Under rating watch with positive implications’

Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1: Instrument Details Date of Amount Issuance / Coupon Maturity Rated Current Rating and ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook 500.0 [ICRA]A1+ NA Commercial Paper - - 7-365 days

Short-term, Fund-based 200.0 [ICRA]A1+ NA - - NA Bank Facilities Long-term / Short-term, 1,325.0 [ICRA]AAA (Stable) / NA Fund-based / Non-fund - - NA [ICRA]A1+ Based Bank Facilities Long-term / Short-term 85.7 [ICRA]AAA (Stable) / NA - - NA Unallocated [ICRA]A1+ Source: Viacom18

ANALYST CONTACTS Subrata Ray Jay Sheth +91 22 6114 3408 +91 22 6114 3419 [email protected] [email protected]

Kinjal Shah +91 22 6114 3442 [email protected]

RELATIONSHIP CONTACT L. Shivakumar +91 22 6114 3406 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

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