TM Angel Broking Jain Irrigation Service Truly Personalized TV Today Network Initiating Coverage
BUY 'T’rue ‘V’alue Today TV Today Network (TVTN), a focused News broadcaster with a strong bouquet of four Price Rs91 news channels, has maintained its leadership in the News Genre over seven consecutive Target Price Rs117 years. Revamped Headlines Today, merger of Radio Today, flow of subscription Revenues Investment Period 12 Months and new channel launches would be the key drivers affecting the TVTN stock performance in the ensuing quarters. At the CMP of Rs91, TVTN is trading at attractive valuations of Stock Info 8.5x FY2010E Earnings making it the cheapest stock in the Broadcasting space. Moreover, we believe the company's recent buyback announcement would lend downside Sector Media-Broadcasting support to the stock. We Initiate Coverage on the stock, with a Buy recommendation Market Cap (Rs cr) 526 and Target Price of Rs117.
Beta 0.8 News Genre gaining ground: News genre viewership has witnessed exponential 52 Week High / Low 200/73 growth from 2.5% to 8.1% during FY2002-08 largely owing to channel explosion and shift in
Avg Daily Volume 68,344 content focus. Advertisers have also upped the spend on this genre owing to rising viewership base of news channels. Thus, although the News genre contributed 8% to the total Face Value (Rs) 5 television viewership pie in FY2008, it accounted for 12-13% of the total television advertising pie. We also expect Hindi news to dominate the News Ad pie with Aaj Tak BSE Sensex 14,001 contributing 25-30% of the Hindi News Ad pie. Nifty 4,228 Strong Brand Franchise: TVTN continues to be India's number one news broadcaster with 22.2% network share owing to sustained leadership of its flagship BSE Code 532515 channel - Aaj Tak. Further, Tez channel has only helped the network cement its leadership position. Post revamp, Headlines Today has also seen a re-rating in its viewership and we NSE Code TVTODAY expect Revenues to follow hereon. Reuters Code TVTO.BO Pay Revenues & Radio Merger - 'The much required boost': After having Bloomberg Code TVTN IN established itself in the international market, TVTN has recently tapped the domestic subscription market. All its channels except Dilli Aaj Tak, went pay in November 2007. Shareholding Pattern (%) Since, subscription Revenue does not entail significant incremental costs, we expect it to directly lend a boost to Bottom-line. Further, merger of the Radio arm into TVTN, we Promoters 55.7 believe, will address the scalability issue and bring in synergistic benefits in terms of MF / Banks / Indian FIs 25.6 garnering local advertising. FII / NRIs / OCBs 0.2 Key Financials Indian Public / Others 18.5 Y/E March (Rs cr) FY2007 FY2008 FY2009E FY2010E Net Sales 188.9 231.0 280.5 331.6 Abs. 3 m 1yr 3yr % chg 18.4 22.3 21.4 18.2 Sensex (%) (7.8) (10.3) 70.9 Net Profits 31.1 43.5 51.0 61.8
TV Today(%) (2.2) (40.4) (15.3) % chg 12.0 40.0 17.2 21.1 OPM (%) 27.5 27.0 26.7 27.7 Anand Shah EPS (Rs) 5.4 7.5 8.8 10.7 Tel: 022 - 4040 3800 Ext: 334 P/E (x) 17.0 12.1 10.3 8.5 E-mail: [email protected] P/BV (x) 2.1 1.8 1.6 1.4 RoE (%) 12.2 14.9 15.3 16.0 Shweta Boob RoCE (%) 13.2 15.5 16.7 18.3 Tel: 022 - 4040 3800 Ext: 311 EV/Sales (x) 2.1 1.7 1.3 1.0 E-mail: [email protected] EV/EBITDA (x) 7.6 6.1 5.0 3.8 Source: Company, Angel Research
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Company Background
TV Today Network (TVTN) is India's leading News broadcasting company. A Living Media Group company (flagship company of India Today Group promoted by Aroon Purie), TVTN was established in 1988 as a media content provider. In 1995, TVTN commenced with the broadcast of Aaj Tak on Doordarshan as a 20min Hindi news and current affairs programme, which speedily gained popularity. Consequentially, in 1999, TVTN was incorporated with the group's mission of exploring the television medium.
Exhibit 1: Business Model
Source: Company, Angel Research
TVTN continues to remain India's number one News broadcaster with 22.2% network share owing to sustained leadership of its flagship channel - Aaj Tak which has successfully battled the onslaught of a large number of new players in the Hindi News space. Tez, the Hindi flanking brand for Aaj Tak, has helped the network cement its leadership position in the Hindi News genre. Headlines Today, its English News channel, was recently revamped, which boosted the channel's viewership share to 10-11% in FY2008. After establishing a strong hold in the national news space, TVTN has also forayed into regional news through Dilli Aaj Tak, a Metro-centric 24-hour Hindi news channel. Dilli Aaj Tak targets viewers in Delhi and the NCR region.
In its attempt to reduce dependence on advertising as well as to cash in on subscription revenues, TVTN has made significant inroads in the International market by distributing Aaj Tak and Headlines today in the Middle East, US (through Echostar Dish Network), UK and Continental Europe (through Globecast World TV). On the domestic front, all TVTN channels (except Dilli Aaj Tak) recently went pay in November 2007 in the non-CAS areas. For distribution of its pay channels, TVTN has entered into a strategic tie up with the One Alliance group.
Radio Today Merger - TVTN has decided to merge its fellow subsidiary Radio Today with itself. Radio Today launched India's first talk-based, women-centric radio station under the banner of Meow 104.8 FM. Meow follows a unique "less music, more talk" format. TVTN is still awaiting approvals from Information & Broadcasting (I&B) Ministry for the merger.
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Investment Argument
News Genre - 'Gaining Ground'
News Genre viewership has Over the last several years, News has emerged as one of the fastest growing genres with its grown exponentially from viewership share growing exponentially from 2.5% to 8.1% over FY2002-08. In absolute 2.5% to 8.1% over FY2002-08 numbers, the average weekly reach of news genre during the period grew from 18mn to 86mn. While rising literacy levels and buoyant economy are the key macro factors aiding this growth, we believe entry of new players in the space coupled with a shift in content focus has helped expand the overall viewership of the News genre.
Exhibit 2: News Genre - Reach and Viewership
100 9.0 8.1 7.7 90 8.0 6.7 80 7.0 70 5.3 6.0 60 5.0 50
(%)
(mn) 3.7 86 4.0 40 3.1 2.5 3.0 30 54 48 50 20 2.0 27 30 10 18 1.0 - -
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008
Reach (LHS) Viewership Share (RHS) Source: TAM India, Company, Angel Research
'Channel Explosion' - The Key driver
44 news channels beam Low entry cost (Rs50-60cr to start a news channel), growing share of the Television advertising across 70mn C&S pie and an easy definition to be qualified as a news channel has driven a large number of households channel launches in the News genre. Moreover, growth of news channels has happened alongside the growth in the number of Cable & Satellite (C&S) homes. During 1998-2002, 8-11 news channels beamed across 20-30mn households, which has risen to 44 news channels (including regional news channels) across 70mn C&S households today. In terms of national channels, currently there are around 25 news channels including 13 Hindi, 7 English and 5 business news channels. Leading the pack in Hindi news channels are Aaj Tak, India TV, Star News, Zee News, IBN7 and NDTV India. Among the English news channels, NDTV 24x7, Times Now, Headlines Today and CNN-IBN top the popularity charts while the Business news space is dominated by CNBC TV18 and NDTV Profit.
We believe while the growing number of channel launches is bound to increase fragmentation in news viewership, it has helped attract a completely new set of viewers and expand the overall base through niche models (city-centric and regional news channels) and fresh content (lifestyle, sports and entertainment).
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Exhibit 3: National News Channels in India
30
25 5 20
4 7 15 4 6 10 4 13 1 5 9 3 6 2 0 FY 2003 FY 2005 FY 2007 FY 2009E
Business English Hindi Source: Company, Angel Research
Shift in Content focus - 'No more Simply News'
News channels have To combat rising competition and garner higher viewership from other genres, News channels transformed into a wholesome have undergone a complete makeover from being traditional News providers to dishing out a infotainment provider wholesome infotainment package. TV news today is no longer political news dominated. Sports (cricket), entertainment and crime stories have also become an integral part of the news bulletins. According to CMS Media Lab, political news content in 2007 declined by more than 50% to 10.1% compared to 23.1% in 2005. Sports, entertainment, crime and human interest news have more than doubled from 27.9% in 2005 to 53.1% in 2007. A rise in comedy and reality shows and emergence and establishment of trivia in news is the face of news channels today.
Overall, news has not only changed in its definition and content, but the manner in which it is presented has also seen a makeover. For example, today breaking news is accompanied by special sound effects to tug at the emotional string of viewers. News channels are in a constant endeavor to make its viewers feel more and more connected to the news, show and channel and thereby retain their loyalty.
More Eyeballs = Higher Advertising Revenue
News Genre accounts for Advertisements are the primary revenue earner for News channels, which is generated on the 12-13% of the total basis of ratings and perception. With rising viewership base of news channels, advertisers have television advertising pie also upped spend on the genre. Thus, although the news genre contributed 8% to the total television viewership pie in FY2008, it accounted around 12-13% of the total television advertising pie. The business of News channels (General and Business News), estimated at Rs1,050cr (advertising pie) in FY2008, has witnessed significant CAGR of 30% during FY2005-08 consistently outpacing the 19% CAGR in overall Television advertising.
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News Ad Pie to grow at 25.4% Exhibit 4: News Genre - Advertising Size
CAGR during FY2008-10 1,800 1,650 1,600
1,400 1,350
1,200 1,050 1,000 850
Rs (cr) 800 625 600 475
400
200
- FY2005 FY2006 FY2007 FY2008 FY2009E FY2010E Source: TAM India, Angel Research
We attribute this strong growth traction in News genre advertising to the following factors:
z News channels command strong reach and average time spent compared to most other genres. News channels enjoy a weekly reach of 65% next to only the general entertainment channels (GECs) and Regional channels. Moreover, on an average, a viewer spends as high as 60mins per week on a news channel.
z News, as a category, attracts a better demographic profile with the key audience largely being Males in the 25+ age bracket, the breadwinner with the maximum spending power. On an average, men watching TV news channels constitute 65-70%. Moreover, viewership pattern in the Metros (higher number of SEC A/B viewers) indicates that the share of News viewership is higher than the average 8% across C&S households.
Exhibit 5: Viewership Breakup in Metros
Others 21% Hindi GECs Eng GECs 34% 1%
Regional 1%
Music 3%
Eng Movies 3% Sports 3%
Hindi Movies 10% News Kids 14% 10%
Source: FICCI-PwC Report on Indian Media 2008, TAM India, Angel Research
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Spot Rates on News Channels z Advertising spot rates on News channels are relatively cheaper at Rs3,000 - 6,000 for a are relatively cheaper than 10sec slot compared to GECs, which charge Rs2-3lakh per 10 sec slot. This is attractive for the GECs advertisers who can reach their target audience at a much cheaper cost as well as increase the frequency of their ads. It also allows the smaller entities to advertise on a national channel.
According to Pitch-Madison, the News genre continued its dominance as the most advertised medium in FY2008 with as much as 22% share in overall advertising volumes. The number of advertisers on news channels grew at a CAGR of 29% during FY2003-08. Thus, news genre continues to attract large number of advertisers (especially small and medium enterprises) as it offers the best Return on investment (ROI) with the most relevant audience for advertisers.
Hindi - 'Bigger and Better'
The business of News channels can be basically divided into three categories (excluding regional news) - Hindi, English and Business. The English News genre, estimated at Rs260cr in FY2008, has good potential to grow as it caters to the more affluent class of the society and remains highly under-penetrated. Major advertisers on English news genre include Telecom, Banks and Automobile companies. The Business genre, estimated at Rs200cr, is the fastest growing sub-genre in the News segment as it is gaining popularity owing to the rise in stock market activity. Also, business news viewers are often key influencers and decision makers making them perfect targets for the advertisers.
Hindi News sub-genre Exhibit 6: News Genre Breakup - Ad Revenue Pie and Viewership dominates both viewership as well as revenue pie
Source: TAM India, Angel Research
But, it is the Hindi News sub-genre that dominates the overall news genre both in terms of viewership as well as share in the total ad revenue pie owing to its strong mass appeal. With an estimated market size of Rs590cr and 13 channels in the fray to garner a bigger chunk of viewership, Hindi News has emerged as the most competitive sub-genre in News. We remain upbeat on the prospects of the Hindi news genre owing to the following factors:
z Like Print Media, average weekly reach of Hindi News channels is higher than its English peers. However, unlike its Print counterpart, advertising rates for Hindi news channels' prime-time slots are also higher compared to the English News channels.
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z The English speaking population in India stands at 100mn compared to the 500mn Hindi speaking population. Moreover, as viewership of News in Metro stagnates, we believe incremental growth will arise from Tier-II and Tier-III towns where Hindi viewership is higher.
TVTN - 'Strong Brand Franchise'
TVTN, India's leading News broadcaster, boasts of a strong bouquet of four news channels, three of which are prudently placed in the large pie of Hindi News genre (Aaj Tak, Tez and Dilli Aaj Tak) and one in the English news genre (Headlines Today). Aaj Tak, its flagship brand, continues to be India's leading Hindi News channel (since December 2000) despite stiff competition in the genre. Tez has also helped the network cement its leadership position. Dilli Aaj Tak, a Metro-centric Hindi news channel, catering to Delhi and NCR viewers, has facilitated TVTN to tap the emerging regional market targeting the local/regional advertisers, which are on the rise. Headlines Today, India's first 24-hour English news channel, has regained popularity after its revamp through new positioning and content in FY2007.
TVTN boasts of a strong A strong bouquet, quality and credible news reporting, innovative presentation style and speed bouquet of four channels of news delivery has helped TVTN consistently maintain its highest network share in the News maintaining highest network genre, which is currently 22.2% and significantly ahead of the second best player, Network18, share in the News genre at which commands 14.7% network share. It has also helped TVTN create a unique, large and 22.2% loyal target audience for its advertisers.
Exhibit 7: News Network Share (viewership)
30
24 25 25 23 22 22
20 16 16 15 15 15 14 (%) 13 12 11 11 9 10 9
5
- TVTN Network 18 NDTV Network Zee News Network
FY2006 FY2007 4QFY2008 1QFY2009 Source: TAM India (CS 15+, All India), Company, Angel Research
Aaj Tak - 'The undisputed leader in Hindi News'
Aaj Tak, TVTN's flagship channel, began as a 20-min news capsule on Doordarshan in 1995 and gained laudable popularity owing to its unique positioning in terms of style and comprehensive coverage. Buoyed by this success, Aaj Tak was launched as a 24-hour Hindi News channel in December 2000 and within months became India's number one news channel. Since its launch, Aaj Tak has been accredited with the Best Hindi News Channel award for seven consecutive years by Indian Television Academy.
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Viewership shaken…But Leadership sustained
Aaj Tak's success coupled with significant growth in new advertisers on News channels attracted a horde of new entrants into the Hindi News genre leading to significant fragmentation of the viewership pie. As a result, Aaj Tak's viewership share has dipped from 40% to 21% over FY2002-08. However, the channel has consistently maintained its leadership position in the genre with India TV and Star News battling out for the No2 slot.
Exhibit 8: Hindi News Genre - Viewership Trend
25%
23%
21%
19%
17%
15%
13%
11%
9%
7%
5% 13579111315171921232527293133
No. of weeks - CY2008
Aaj Tak India TV Star News Zee News IBN 7
Source: TAM India (CS 15+, All India), Company, Angel Research
However, with Aaj Tak going pay in November 2007, its viewership was partially affected. However, we remain confident of Aaj Tak's ability to lead the Hindi News genre (both in terms of viewership as well as share of the Hindi News Ad pie) on a consistent basis owing to the following factors:
z Beginning with an impressive connectivity of 5.2 million homes in FY2001, Aaj Tak increased its reach to 35.5mn in FY2008. Currently, Aaj Tak enjoys an average reach of 33.7mn, 30.8% higher than its nearest competitor - India TV. Moreover, it is the only news channel (excluding DD News) to have a reach comparable to the GECs.
z Aaj Tak's ability to adapt to changing viewer demands and its strength in quality programming (pioneered feature-based programming within the news genre) has helped it consistently account for higher share of Top programmes on News channels. In CY2008 (week 1-34), Aaj Tak accounted for 66 out of the Top-100 programmes telecasted on Hindi News channels significantly ahead of competitors, Star News (25 shows), India TV (5 shows), Zee News (3 shows) and IBN7 (1 show).
z While several players have increased their viewership share in the past few years, the same has not reflected in their advertising rates. However, Aaj Tak has consistently been able to charge premium rates on account of its strong brand equity, wide base of loyal viewers and sustained leadership. Moreover, its policy of maintaining high transparency in terms of rate card has helped it develop a strong base of loyal advertisers.
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Aaj Tak commands almost Exhibit 9: Hindi News Channels - Ad Rates and Reach 40% premium in ad rates 40.0 Prime Time (prime time) as compared to Tez Non Prime time 35.0 33.7 its peers Star News 30.0 25.8 Zee News 25.0
19.5 19.2 20.0 NDTV India
(In mn)
15.0 14.2 India TV 10.0 Aaj Tak 5.0 0 2,000 4,000 6,000 8,000 10,000 - Aaj Tak India TV IBN 7 Zee News Star News (In Rs)
Source: TAM India (CS 15+, All India), Company, Angel Research
Tez - 'Playing the flanking game'
TVTN launched its flanker 24-hour Hindi News channel, Tez, in August 2005 to protect Aaj Tak's dwindling viewership and cement its leadership position. Tez, a uniquely positioned channel in the highly cluttered Hindi news space, was designed to deliver back-to-back news in a crisp format for busy viewers. Apart from cementing Aaj Tak's leadership position, Tez has also helped attract a new set of low-budget advertisers who could not afford the premium rates charged by Aaj Tak. Since its launch, Tez has grown its reach by 172% from 4.7mn in 4QFY2006 to 12.8mn in 1QFY2009. Tez has been successful in establishing its position among the lower order Hindi News channels (Samay, News24 and Live India) and commands viewership share of 4-5%. Together with Aaj Tak, Tez has also helped the TVTN network emerge as the clear leader in the Hindi News genre by garnering a combined marketshare of 25% in 1QFY2009.
Exhibit 10: Aaj Tak with Tez - Clear leader in Hindi News Genre
Aaj Tak + Tez = Clear Leader 30%
25%
20%
15%
10%
5%
0% 13579111315171921232527293133
No of Weeks (CY2008)
Aaj Tak+Tez India TV Star News Zee News IBN 7 Source: TAM India (CS 15+, All India), Company, Angel Research
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Dilli Aaj Tak - 'A niche model'
After establishing a strong hold in the national news space, TVTN launched its first regional news offering, Dilli Aaj Tak, in May 2006. Dilli Aaj Tak, a Metro-centric 24-hour Hindi news channel, targets viewers in Delhi and the NCR region. Leveraging on its flagship brand, Aaj Tak, TVTN has positioned Dilli Aaj Tak as a utility channel in the capital region. Driven by the informational needs of the average Delhiite, Dilli Aaj Tak has a stylish and vibrant look. Some of the programmes beamed on the channel include Janpath, Chalo Bazaar and Dilli Talkies that educate and inform viewers on where to find what in Delhi.
Exhibit 11: Reach of City-Centric Hindi News Channels in Delhi
2,500 2,278
1,992 2,000
1,500
'000s)
1,000
Reach (in 702
500
148
- Dilli Aaj Tak Sahara Samay Total TV S1
Source: TAM India (CS15+ - Delhi, Wk1-34, 2008), Company, Angel Research
In a short span of time, Dilli Aaj Tak has emerged as the leader in the region outshining competitors like Sahara NCR, S1, Total TV and the recently launched English Metro-centric news channel, NDTV Metronation, achieving total reach of 2.3mn in 1QFY2009. The channel has deliberately shied away from covering news outside the Delhi/NCR region and has still succeeded in retaining viewer attention. We remain upbeat on the future prospects of the channel as its leadership position in the NCR region helps it to tap a huge pool of local advertisers. Moreover, its prevailing spot rates are also as low as FM radio channels in Delhi, which provides scope for rate hikes to roll in.
Headlines Today - 'The wild card'
HT relaunched with new After consolidating Aaj Tak's position in the Hindi News Genre, TV Today decided to capture the positiong of ‘refreshingly English News space by launching Headlines Today, India's first exclusive 24-hour English news different’ channel, in April 2003. In 2004, Headlines Today emerged as India's fastest growing English news channel relegating international giants like BBC and CNN to subsequent positions in terms of marketshare in India. However, post entry of strong contenders like NDTV 24x7, CNN-IBN and Times Now, the channel consistently lost marketshare registering a significant drop in its viewership from 17% in FY2005 to 7.6% in FY2007. Hence, Headlines Today's advertising rates are at a significant discount to its peers (particularly Non-prime slot) owing to its relatively lower reach and viewership share.
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During CY2008 HT has To arrest the declining share, TVTN re-launched the channel in FY2007 with a new positioning managed to hold a - "refreshingly different" - targeting youth and the discerning metro urban population. The all-new consistent 12-15% viewership Headlines Today has a programming and special feature based format that gives the viewer not share only the daily dose of news, but also a lot more (focus on details rather than just headlines). Subsequent to the revamp, the channel's viewership share improved to 10-11% in FY2008. The company has also invested heavily in ramping up reach of the channel (reflected in higher carriage fees), which has improved by 19% yoy to 10mn in FY2008 (8.4mn). During CY2008 (Week 1-34) Headlines Today has managed to hold a consistent 12-15% viewership share of the English News genre despite entry of a new player News X from INX Media.
Exhibit 12: English News Genre - Viewership Trend
35%
30%
25%
20%
15%
10%
5%
0% 1 3 5 7 9 111315171921232527293133
No of Weeks (CY2008)
NDTV 24x7 CNN IBN Times Now Headlines Today News X Source: TAM India (CS 15+, All India), Company, Angel Research
We believe this is reflective of the channel's revived popularity owing to new content, look and better reach. Management has guided that Headlines Today will achieve 14-15% marketshare and a reach of 15mn. If the company is able to achieve its targets, Headlines Today could turn out to be the wild card in TVTN's bouquet boosting overall Topline through better inventory utilisation and hike in advertising rates.
Pay Revenues, Radio Merger - 'The much needed boost'
Subscription - International, Domestic - to boost Bottom-line
To explore opportunities in markets with sizeable Indian Diaspora and cash in on the subscription revenues, TVTN has made significant inroads in the International market by having a presence in the Middle East, US, UK and Continental Europe. TVTN first tapped the international market in 2005 by launching Aaj Tak and Headlines Today in the US partnering with Echostar Dish Network, the largest cable and DTH operator in US. After initial success in US, the company launched Aaj Tak in the UK and European markets through Globecast World TV, Europe. Overseas subscription revenues account for 2-3% of TVTN's Total Revenue.
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All TVTN channels (except On the domestic front, all TVTN channels (except Dilli Aaj Tak) went pay in November 2007 in Dilli Aaj Tak) went pay in non-CAS areas. For distribution of its pay channels, TVTN has entered into a strategic tie up November 2007 with the One Alliance group. One Alliance, the distribution joint venture (JV) between Sony Entertainment Television (SET) and Discovery for India, distributes a total of 18 channels from broadcasters like SET, Discovery, NDTV and TV Today. TVTN's three channels have been included in One Alliance's second bouquet priced at Rs65 for non-CAS areas and Rs22.45 for the DTH platform.
Domestic subscription revenues have already started flowing in from 1QFY2009. In terms of overall subscription revenues (domestic and international), we have factored in Total Revenues of Rs10cr and Rs15cr for FY2009E and FY2010E, respectively. Pertinently, as subscription revenue doesn't entail any significant incremental cost, we expect it to directly boost the Bottomline.
Digital platforms to unlock higher subscription revenues
According to FICCI-PwC, subscription revenues are expected to be the biggest driver of growth in the Indian Television industry registering a CAGR of 23% over CY2007-12 to Rs380bn. The growth is likely to be contributed by both jump in Pay TV homes and higher subscription spending. Moreover, growth in Pay TV homes is likely to be driven by a rise in digital platforms like DTH, CAS and IPTV, which should help improve addressability issues by providing accurate data on the number of subscribers. According to industry estimates, under-declaration of subscriber base in India is as high as 80%. Thus, broadcasters end up getting merely 14-15% share of subscription revenue with majority flowing to the local cable operators (LCOs). However, with advent of digital platforms, this scenario is expected to change as under-reporting gets checked. Moreover, TRAI has regulated revenue sharing amongst the broadcasters, multi-system operators (MSOs) and LCOs in the ratio 45:30:25, which should help boost broadcasters' share significantly.
Radio Today - 'Meowing its way in'
TVTN has decided to merge Radio Today Broadcasting Ltd (RTBL), a fellow subsidiary, with itself. Radio Today launched India's first talk-based, women-centric radio station under the ban- ner of Meow 104.8 FM creating a niche for itself in the existing multitude of similar FM stations with low attention spans. Meow follows a unique "less music, more talk" format and has a potent mix of programming for the 'she' listener, which differentiates it from others. Its tag line 'Thodi Meethi, Thodi Catty' reflects the station's positioning.
Lowest successful bidder First launched in Delhi in May 2007, the station has already extended its presence in metros facilitating faster break-even like Kolkata and Mumbai. After selling Red FM to a clutch of investors, RTBL had acquired licenses for seven cities (Delhi, Mumbai, Kolkata, Amritsar, Patiala, Shimla and Jodhpur) for a period of 10 years by paying a one-time entry fee (OTEF) of Rs28.6cr under Phase II bidding. TVTN emerged as one of the lowest successful bidders for the three metros, which should facilitate faster break-even compared to its peers (lower amortisation of OTEF over the 10 year period).
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Exhibit 13: Radio Today - Lowest Bidder in Metros during Phase II bidding
40.0 35.2 35.0 31.4 30.0
25.0
20.0
(Rs cr) 15.0 10.3 10.1 10.0 6.1 5.0 3.2
0.0 Delhi Kolkata Mumbai
TVTN Bid Highest Bid Source: I&B Ministry, Company, Angel Research
Radio Today merger will help TVTN has decided to merge Radio Today Broadcasting Ltd (RTBL), the radio division of the India TVTN diversify its revenue Today Group, with itself effective April 2007. Currently, TVTN holds 10% stake in the fellow streams and address subsidiary. The merger will take place through a share swap agreement in the ratio 5:9 (five scalability issue shares of TVTN for every nine shares held in Radio Today). This will result in fresh issue of 55,20,000 equity shares of Rs5 each. However, we have not factored the dilution in our projections as TVTN is still awaiting approvals from the Information & Broadcasting (I&B) Ministry for the merger.
We believe merger of the Radio arm into TVTN will have positive implications for the company:
z It will help TVTN diversify its Revenue streams, which are highly dependent on a single category - News Genre and single medium - Television.
z It will bring in synergistic benefits in terms of garnering local advertising. Bundled with its bouquet of TV channels, particularly city-centric channels like Dilli Aaj Tak, TVTN can provide advertisers with an extensive platform in terms of varied audience including advertisers targeting women in particular.
z TRAI has recommended a hike in FDI cap to 26% from 20% for FM radio licence holders, who are interested in broadcasting news. We believe this move is extremely positive for TVTN. With a talk-based format radio station, wide base of female listeners and support of its news channels, TVTN would be at a significant advantage to its peers.
We remain bullish on the future prospects of Radio Today owing to differentiated content and lower costs (less content costs + lower capex). Nonetheless, we have not factored the same in our projections as we await clarity on merger details.
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Financial Outlook
Topline growth to be driven During FY2008-10E, we expect TVTN to post a CAGR of 19.8% in Topline largely driven by by advertising revenues - advertising revenue as subscription revenues are expected to contribute merely 4.5% to the expected to grow at 19.8% Topline in FY2010. Advertising revenues are expected to be driven by better inventory utilisation CAGR during FY2008-10 across channels coupled with modest rate hikes of 8-10%. Moreover, unbundling of the rate card for its channels is expected to provide more flexibility to the advertisers thereby enhancing realisations and overall Topline. While we expect Aaj Tak to grow at a steady CAGR of 15.7% during the period, its contribution to total advertising revenues is expected to drop from 83% in FY2008 to 79% in FY2010 as other channels, Headlines Today, Tez and Dilli Aaj Tak, grow at a faster pace (partially owing to lower base).
Exhibit 14: Revenue Breakup Y/E Mar (Rs cr) FY2006 FY2007 FY2008 FY2009E FY2010E CAGR FY08-10 (%) Aaj Tak 134.9 157.4 185.7 218.5 248.7 15.7 Headlines Today 17.3 18.4 21.9 27.3 33.5 23.6 Tez 5.6 7.1 13.2 18.2 25.4 38.7 Dilli Aaj Tak - 1.5 3.3 5.7 8.1 56.7 Total Advt Rev 157.8 184.5 224.1 269.8 315.6 18.7 Subs/Other Rev 1.7 4.4 7.0 10.7 16.0 51.4 Total Revenue 159.6 188.9 231.0 280.5 331.6 19.8 Source: Company, Angel Research
In terms of overall subscription revenues (domestic and international), we have factored in a Total Revenue of Rs10cr and Rs15cr for FY2009E and FY2010E, respectively. On the domestic front, all TVTN channels (except Dilli Aaj Tak) went pay in November 2007 in the non-CAS areas. At present, there are 120mn Television Households in India of which 70mn are pay of which only 6mn households are connected to DTH services. However, with increasing demand for quality experience and entry of big players like Reliance ADAG and Bharti Airtel, this number is expected to increase to 25mn by CY2012. Since, DTH will help in better transparency in terms of viewership, TVTN's subscription revenues are expected to get an additional boost post FY2010 (not captured in our estimates).
Carriage Fees and staff costs On the Operating front, we expect Margins to improve by 70bp to 27.7% largely owing to higher to weigh on Margins but operating leverage driving a CAGR of 21.4% in EBITDA over FY2008-10E. During FY2005-07, higher operating leverage to TVTN saw its staff costs spike from 18% to 24% of sales owing to higher attrition in the Media aid Margin expansion space. Moreover, advertising & promotion expenses have also witnessed a sharp uptick (largely carriage fees - up from 10% to 18% of sales) on the back of increasing fragmentation of news channels and higher investments in new channels to improve their reach. We have factored in a CAGR of 21.2% and 26.5% in staff cost and carriage fees respectively, for TVTN for FY2008-10E. However, digitalisation of distribution platforms could lead to significant savings in carriage fees (not factored in our estimates). Moreover, revenue from subscription will aid Margin expansion as no significant incremental cost is associated with the subscription revenues. We expect TVTN to register 19.1% CAGR in Earnings over FY2008-10E supported by
SeptemberJanuary 30, 12,2008 2008 For For Private Private Circulation Circulation Only Only - -Sebi Sebi Registration Registration No No :: INBINB 010996539 14 Angel BrokingTM TV Today Network Service Truly Personalized Media-Broadcasting
robust Topline, modest Margin expansion and steady Other Income (on the back of strong cash balance of Rs150cr).
Exhibit 15: Financial Performance
90 28 81 80 74 28 69 70 62 62 27 60 55 51 27 46 50 45 44 26
(%)
(Rs cr) 40 34 31 26 30 25 20
10 25
- 24 FY2007 FY2008 FY2009E FY2010E
PAT (LHS) Adv & Distribution cost (LHS) Staff Cost (LHS) OPM (RHS) Source: Company, Angel Research
Strong Cash Flow, Low Capex requirements - Key positives
Unlike its peers who are at heavy expansion phase and are reeling under the pressures of negative cash flows (owing to high initial opex), TVTN is expected to post strong operating cash flows during FY2008-10E. Moreover, as TVTN's two key channels - Aaj Tak and Headlines Today - are already mature and new channels like Tez and Dilli Aaj Tak entailed extremely low incremental setup costs, the company has already exhausted its capex requirement. However, management has guided capex of Rs50cr to be incurred for shifting its corporate office to Noida during the next couple of years. We believe TVTN's strong balance sheet (debt-free) and surplus cash balance (estimated at Rs150cr in FY2008) would be sufficient to fund its future capex requirements including the Noida capex and investments in its Radio business (post-merger). In terms of Return Ratio, we prefer to look at RoIC (owing to surplus cash balance), which is expected to improve by 240bp to 22.7% during FY2008-10E owing to steady Earnings growth.
Exhibit 16: Strong Operating Cash Flows and RoIC
70 66 24
60 23 53 50 22 42 44 41 40 36 21
)
%
(
(Rs cr) 30 29 20
20 19 14 10 18
0 17 FY2007 FY2008 FY2009E FY2010E
Op Cash Flow (LHS) Capex (LHS) RoIC (RHS)
Source: Company, Angel Research
JanuarySeptember 30, 200812, 2008 For For Private Private Circulation Circulation Only Only - -Sebi Sebi Registration Registration NoNo :: INB 010996539 15 Angel BrokingTM TV Today Network Service Truly Personalized Media-Broadcasting
Outlook and Valuation
Lack of new growth edifices - Key concern
Over the last few years, TVTN has traded at a significant discount to peers like NDTV and TV18 owing to high dependence on a single property (Aaj Tak) and lack of new growth edifices despite substantial cash balance. While we respect management's decision of not to destroy wealth by entering into other genres of media and entertainment, which are extremely cluttered and in many cases loss making, its plans to scale up within News genre by entering the regional market and foraying into other channels like lifestyle and entertainment not materializing, remains a concern. Nonetheless, at current valuation of 8.5x FY2010E Earnings, we see immense value in TVTN's strong bouquet of news channels particularly its core property - Aaj Tak.
We remain bullish on TVTN's business prospects owing to the following reasons:
Concentrated player - 'Big Fish in a small Pond'
Unlike peers, TVTN has consciously stuck to its core strength of News broadcasting and hasn't compromised cash flows for growth. While players like IBN18 and NDTV have entered the bigger GEC space, both are registering increased losses owing to high initial investment and heavy operational costs associated in operating a GEC channel. Moreover, News genre along with other emerging genres like regional entertainment, lifestyle, movies and sports are clearly eating up into the GEC advertising pie. Thus, we believe TVTN, which has sustained its leadership in the News genre despite heightened competition, is well placed in terms of funding and expertise to tap this emerging opportunity.
Aaj Tak - 'Here to stay'
We believe the News turf is clearly turning into a battle of 'Survival of the Fittest' with 25 national news channels fighting for a share of the Rs1,050cr advertising pie, which is expected to post a CAGR of 25% over FY2008-10E. Moreover, with more News channels expected to get launched (almost 33 broadcasters have received new licenses to beam News channels in 2008), the battle will only worsen. In such a scenario, a channel's ability to sustain its profitability despite increasing operating expenses (staff costs and carriage fees) will clearly be tested. Aaj Tak's strong leadership position in terms of both viewership and revenues and strong cash flows reinforces our belief in the long-term sustainability of the channel.
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Exhibit 17: Aaj Tak’s share in News Ad Pie Y/E Mar (Rs cr) FY2006 FY2007 FY2008 FY2009E FY2010E CAGR FY08-10 (%) Hindi 375 493 588 743 891 23.1 English 163 221 263 338 413 25.4 Business 88 136 200 270 347 31.8 Total News Pie 625 850 1050 1350 1650 25.4 Aaj Tak's Rev 135 157 186 218 249 15.7 AT % of Hindi Pie 36.0 31.9 31.6 29.4 27.9 Source: TAM India, Company, Angel Research
True 'Value play'
We believe improved viewership share of Headlines Today and its sustenance, merger of Radio Today, flow of subscription revenues and new channel launches would be the key drivers for TVTN's stock performance in the ensuing quarters. Moreover, the company's recent buyback announcement from the open market to the tune of Rs29.3cr for a price not exceeding Rs115 per share, should lend downside support to the stock.
At the CMP of Rs91, TVTN is trading at attractive valuations of 8.5x FY2010E Earnings making it the cheapest stock in the Broadcasting space. Given the strong brand equity of Aaj Tak, steady Earnings growth of 19.1% CAGR over FY2008-10E, improving Return Ratios and high cash per share of Rs25, we believe the stock is a true value play at current levels. We Initiate Coverage on the stock with a Buy recommendation and Target Price of Rs117, based on 11x FY2010E Earnings (lower end of its historical average P/E band of 11-13x).
Exhibit 18: P/E Band
200
180 15x
160
13x 140 FII allowed in the 26% FDI GBN IPO - All news 11x 120 stocks rallied
Reliance 9x 100 triggers open offer at Rs130/share 80 Buy Back Announcement AT& HT Launch 60 Launch launched of DAT in Launch of of Tez in US Delhi AT in UK
40
Feb-06 Apr-05 Oct-05 Apr-06
Jun-06 Oct-06
Dec-06
Feb-07
Apr-07
Aju-07 Oct-07
Dec-07
Feb-07
Apr-08
Jun-08
Jun-05
Aug-06
Aug-08
Dec-05
Aug-05
Aug-07 Source:Company, Angel Research
JanuarySeptember 30, 200812, 2008 For For Private Private Circulation Circulation Only Only - -Sebi Sebi Registration Registration NoNo :: INB 010996539 17 Angel BrokingTM TV Today Network Service Truly Personalized Media-Broadcasting
Profit & Loss Statement Rs crore Balance Sheet Rs crore
Y/E March FY2007 FY2008 FY2009E FY2010E Y/E March FY2007 FY2008 FY2009E FY2010E
Net Sales 188.9 231.0 280.5 331.6 SOURCES OF FUNDS % chg 18.4 22.3 21.4 18.2 Equity Share Capital 29.0 29.0 29.0 29.0
Total Expenditure 137 169 206 240 Reserves& Surplus 225.6 263.0 305.6 357.2 Shareholders Funds 254.6 292.0 334.6 386.2 EBIDTA 52.0 62.4 74.7 92.0 Total Loans 4.3 4.0 3.7 3.3 (% of Net Sales) 27.5 27.0 26.7 27.7 Deffered Tax Liability (net) 3.0 3.0 3.0 3.0 Other Income 13.5 20.4 21.0 22.7 Total Liabilities 261.9 299.0 341.2 392.5 Depreciation& Amortisation 17.3 16.0 17.7 20.2 APPLICATION OF FUNDS Interest 0.1 0.1 0.1 0.1 Gross Block 160.5 184.8 224.4 265.3 PBT (Incl Ext) 48.1 66.7 77.9 94.3 Less: Acc. Depreciation 72.5 88.5 106.3 126.4
(% of Net Sales) 25.5 28.9 27.8 28.4 Net Block 87.9 96.3 118.1 138.9 Capital Work-in-Progress 9.7 13.9 16.8 19.9 Extraordinary Expense/(Inc.) - - - - Investments 55.1 75.1 95.1 115.1 Tax 17.0 23.2 26.9 32.5 Current Assets 223.6 239.4 257.5 293.2 (% of PBT) 35.4 34.7 34.5 34.5 Current liabilities 114.6 125.9 146.6 174.9 Reported PAT 31.1 43.5 51.0 61.8 Net Current Assets 109.0 113.5 110.9 118.3 % chg 12.0 40.0 17.2 21.1 Misc Exp 0.3 0.3 0.3 0.3 (% of Net Sales) 16.5 18.8 18.2 18.6 Total Assets 261.9 299.0 341.2 392.5
Cash Flow Statement Rs crore Key Ratios
Y/E March FY2007 FY2008 FY2009E FY2010E Y/E March FY2007 FY2008 FY2009E FY2010E Profit before tax 48.1 66.7 77.9 94.3 Per Share Data (Rs) Depreciation 17.3 16.0 17.7 20.2 EPS 5.4 7.5 8.8 10.7 (Inc)/Dec in Working Capital (0.9) (11.6) (3.7) (3.7) Cash EPS 8.3 10.3 11.9 14.1 Interest / Dividend (Net) (6.3) (9.0) (9.9) (12.9) DPS 0.8 1.0 1.3 1.5 Book Value 43.9 50.3 57.7 66.6 Direct taxes paid 17.0 23.2 26.9 32.5 Operating Ratio Others (4.8) 2.0 (2.1) 0.4 Inventory (days) - - - - Cash Flow from Operations 36.4 40.9 53.0 65.8 Debtors (days) 126.4 123.7 119.7 117.7 Inc/(Dec) in Fixed Assets 13.6 28.6 42.5 44.0 Creditors (days) 81.8 77.1 75.6 76.3 Free Cash Flow 22.8 12.4 10.5 21.8 Returns (%) (Inc)/Dec in Investments (15.3) (20.0) (20.0) (20.0) RoE 12.2 14.9 15.3 16.0 Issue of Equity - - - - RoCE 13.2 15.5 16.7 18.3 Inc./(Dec.) in loans (0.3) (0.3) (0.3) (0.3) ROIC (Pre Tax) 27.4 31.1 31.7 34.6 Dividend Payout 16.4 15.6 16.6 16.5 Dividend Paid (Incl. Tax) 5.1 6.8 8.5 10.2 Valuation Ratio (x) Interest / Dividend (Net) (6.3) (9.0) (9.9) (12.9) P/E 17.0 12.1 10.3 8.5 Cash Flow from Financing 0.9 1.9 1.1 2.4 P/E (Cash EPS) 10.9 8.9 7.7 6.4 Inc./(Dec.) in Cash 8.4 (5.7) (8.5) 4.2 P/BV 2.1 1.8 1.6 1.4 Opening Cash balances 71.7 80.2 74.4 66.0 EV / Sales 2.1 1.7 1.3 1.0 Closing Cash balances 80.2 74.4 66.0 70.2 EV / EBITDA 7.6 6.1 5.0 3.8
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Buy (Upside > 15%) Accumulate (Upside upto 15%) Neutral (5 to -5%) Ratings (Returns) : Reduce (Downside upto 15%) Sell (Downside > 15%)
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SeptemberJanuary 30, 12,2008 2008 For For Private Private Circulation Circulation Only Only - -Sebi Sebi Registration Registration No No :: INBINB 010996539 20