Press Release ABP News Network Private Limited November 30, 2017 Rating Amount Facilities Rating1 Rating Action (Rs. crore) CARE A; Stable Revised from CARE A-; Stable 25.75 Long-term Bank Facilities (Single A; Outlook: (Single A Minus; Outlook: (reduced from 40.00) Stable) Stable) 25.75 Total Facilities (Rs. Twenty Five crore and Seventy Five lakhs only) Details of instruments/facilities in Annexure-1 Detailed Rationale& Key Rating Drivers The revision in the rating assigned to the bank facilities of ABP News Network Private Limited (ANNPL) takes into account the growing revenue, healthy profitability and cash accruals in FY17 (refers to the period from April 01 to March 31) and H1FY18 coupled with improved debt coverage indicators. The rating continues to derive strength from the strong promoter group and experienced promoters with long track record in the media industry, established market position of ANNPL’s news channels in their respective genres, comfortable liquidity position and initiatives for diversification into digital media platform to support future revenue growth. The above strengths are, however, partially offset by ANNPL’s significant dependence on advertisement revenue, high competitive intensity in the news broadcasting space. Going forward, ability to maintain its brand positioning, diversify its revenue streams, while surviving the competition and cost pressures. Ability of the company to improve its profitability, along with maintenance of its capital structure and increasing market share amidst intense competition in the news broadcasting industry will be the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Part of the strong ABP group The ABP group has been in the business of publishing newspapers and magazines since 1922. In 2003 it forayed into electronic media space through ANNPL. The ABP group has evolved into a media conglomerate that has four 24-hour national TV news channels (ABP News, ABP Ananda, ABP Majha and ABP Asmita), 9 premier publications (AnandabazarPatrika, The Telegraph, Ebela, Desh, Sananda, Anandlok, Anandamela, Sananda Oriya, and TTIS), leading book publishing house (Ananda Publishers) and mobile-based information services (Mjoy). Furthermore, the electronic media segment of the group, is also currently operating Punjabi news ‘channel ABP Sanjha’ only through internet. Established market position of news channel in their respective genres Maintaining high Television Rating Points (TRP) is essential for achieving higher revenues (mainly from advertisement), as high TRP improves advertisement slot rates and leads to increase in revenue for the company. ABP News has consistently been able to maintain a strong position in the Hindi news genre. Further, ABP Ananda, ABP Ashmita and ABP Majha are also having satisfactory position in their respective genres. Growing revenue and healthy profitability in FY17 and H1FY18 Net sales grew by 9% in FY17 vis-à-vis FY16 on the back of higher revenue from advertisement. PBILDT and PAT margins remained healthy during FY17 and H1FY18 as the channels continue to enjoy established position in respective genres. Moreover, the loss from the new channel, ABP Asmitha is being offset by healthy profitability from other established channels. The cash accrual of ANNPL remained satisfactory at Rs.76 crore vis-à-vis debt repayment obligation of Rs.12.75 crore in FY17. In H1FY18, the company earned PAT of Rs.22.76 crore (H1FY17: Rs.19.48 crore) on a total operating income of Rs.219.6 crore (H1FY17: Rs.206.2 crore). 1Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited Press Release Improvement in the debt protection metrics and net-worth position post significant deterioration in networth on account of amalgamation With improvement in the profitability level of the company, the networth position, which eroded as a result of amalgamation of one of the loss making group company in FY16, improved as on March 31, 2017 vis-à-vis March 31, 2016. Strong cash-flow from established channels (ABP News and ABP Ananda) and surplus liquid funds as on April 1, 2016 supported the loss from newer ventures and repayment of term debt obligation with reduction in loans and advances from ABP by Rs.73 crore in FY17. In H1FY18, ANNPL has further repaid Rs.20 crore advance from promoters. Liquidity position of the company remained comfortable with the company having outstanding cash balance of Rs.17.1 crore as on March 31, 2017 (Rs.34 crore outstanding as on September 30, 2017) and less than 10% utilisation of the fund-based working capital limits. The interest coverage ratio of the company also improved and stood at 33x in FY17 and 80x in H1FY18. Total debt to GCA also improved to 2.15x as on March 31, 2017 from 3.20x as on March 31, 2016 on the back of lower debt. Given the strong brand image, sound financial and liquidity position, ANNPL is well placed to venture into capex plan to retain its market position. Key Rating Weaknesses Significant dependence on advertisement revenue The company’s major source of income is through advertisements contributing around 98% of the total revenues in FY16- FY17. The share of subscription income has remained low due to slack regulation and non-disclosure of actual number of subscribers resulting in leakage of income. However, the established market position of ANNPL’s news channels have enabled the company command healthy ad rate hikes and resulted in sustained growth in ad revenues and healthy operating margin. Industry Outlook India is the second largest Television market after China with a digital media market growing at a growing pace. Mandatory digitisation plan laid out by the Ministry of Information and Broadcasting (MIB) had pinned hopes of increased subscription income for the MSOs and Broadcasters. However, slow monetisation in Phase-I and II markets despite completion of digitisation and delay in digitization in Phase III and IV markets has dented the expectations of benefits from the digitization process. This has reduced subscription income for various channels. Thus, the anticipated increase in Average Revenue Per User (ARPUs) and subscription revenues for broadcasters and MSOs (Multi System Operators) is expected to be realised only over the next 2-3 years as MSOs begin the process of becoming B2C organisations from B2B organisations. The growth in Indian Media & Entertainment industry is aided by strong fundamentals and a steady growth in consumption, although demonetisation led to decline in terms of growth across all sub-segments at the end of the year. Analytical approach: Standalone with notching based on linkage with parent Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition Rating Methodology - Service Sector Companies Rating Methodology: Factoring Linkages in Ratings Financial ratios – Non-Financial Sector About the Company ANNPL was incorporated on May 30, 2002 as Media Content & Communications Services India Private Limited (MCCS), part of STAR Group. MCCS was a content provider to STAR News Broadcasting Limited (SNBL). Subsequently, ABP became the majority partner with 74% stake in ANNPL through its fully owned subsidiary, ABP TV Private Limited (ABP TV). In April 2012, SNBL exited ANNPL and sold its remaining 26% stake to ABP TV. In FY16, pursuant to a scheme of amalgamation, ABP TV was merged with ANNPL and the company is now a 100% subsidiary of ABP. ANNPL currently broadcasts four news channels- ABP News (Hindi), ABP Ananda (Bengali), ABP Majha (Marathi) and ABP Asmita (Gujarati). 2 CARE Ratings Limited Press Release Financials of ANNPL Limited Brief Financials (Rs. crore) FY16 (A) FY17 (A) Total operating income 409.99 441.28 PBILDT 77.36 79.50 PAT 60.52 61.60 Overall gearing (times) NM NM Interest coverage (times) 21.24 33.22 NM= Not Meaningful A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications. 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