November 09, 2020 TV18 Broadcast Limited: Rating reaffirmed Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Commercial Paper Programme 750.0 750.0 [ICRA]A1+ reaffirmed Short-term, Fund-based / Non-fund 750.0 750.0 [ICRA]A1+ reaffirmed based Bank Facilities Total 1,500.0 1,500.0 *Instrument details are provided in Annexure-1 Rationale The rating reaffirmation factors in TV18 Broadcast Limited’s (TV18) strong parentage, which lends support to the company’s financial profile and provides a significant refinancing ability. The media businesses under TV18 and its parent, Network18 Media & Investments Limited (Network18, rated [ICRA]A1+), remain strategically important to Reliance Industries Limited’s (RIL, rated [ICRA]AAA (Stable) / [ICRA]A1+ and Baa2 (Stable) by Moody’s Investors Service) ecosystem approach to digital outreach. Independent Media Trust (IMT), of which RIL is the sole beneficiary, holds a majority stake (73.15%) in Network18. In FY2018, TV18 raised its stake in Viacom18, its JV with Viacom Inc., to 51% from 50%, thereby gaining operational control of the JV, further reiterating the Group’s commitment to the media business. The strategic importance of the media business to the RIL Group, given that this is the largest investment of the Group in the media and entertainment segment, augurs well for the future business growth of the company. The ratings continue to factor in the diversified offerings of TV18’s broadcasting business across genres, including general entertainment channels (GECs) in Hindi, English and six regional languages, business news channels in Hindi, English and Gujarati, and general news channels in Hindi, English and 14 regional news channels. TV18’s channel bouquet strength and its healthy market share in terms of viewership ratings, as reflected by its 10.7% share in the GEC genre and 8.7% in the news genre during Q2 FY2021, has supported the advertisement revenue growth for the company. Despite the adverse impact of Covid-19 on advertisement spending which resulted in a YoY decline of 23% in TV18’s revenue during H1 FY2021 (as per consolidated provisional financials), the company was able to report a strong YoY improvement in its consolidated operating profit margin (OPM) to 11.7% during H1 FY2021 (as per consolidated provisional financials), against an OPM of 7.9% in H1 FY2020, driven by broad-based cost controls across business lines. The rating remains exposed to the risks inherent to the media and entertainment industry in terms of linkage of advertisement revenue-driven business profile to cyclicality in advertisement spends by corporates and the working capital-intensive nature of the operations because of an extended receivable cycle. However, the ratings draw comfort from the healthy net distribution income and the growth in subscription revenues (which are relatively more stable) attributable to the implementation of the new tariff order (NTO) in FY2019. ICRA notes the rising competition with an increase in the total number of channels in the mass content as well as the niche segments, coupled with the emergence of alternative content delivery platforms such as digital media, resulting in fragmentation of the viewership. TV18’s profitability continues to be moderated by significant, albeit judicious, investments in its new business segments such as its over-the-top (OTT) platform, VOOT, and regional news and entertainment channels under various stages of gestation. The investments in the OTT platform are likely to continue, given the significant potential of the digital platform and the potential synergies with Jio. The company’s ability to monetise the platform through a sustainable business model (such as subscription revenues which is currently in a nascent stage) in the medium term, however, will be crucial. Apart from a meaningful recovery in macro-economic scenario post Covid-19 pandemic, TV18’s ability to maintain its leadership 1 position across genres and the resultant share in the advertisement revenue pie will remain critical to sustain its revenue growth. Furthermore, a scale up in revenues of the regional news channel portfolio (news business has high operating leverage) and continued judicious investments in VOOT will be critical drivers for the company’s overall revenue growth and profitability. On February 17, 2020, TV18 intimated the stock exchanges regarding a scheme of amalgamation and arrangement amongst Network18, TV18, DEN Networks Limited (DEN) and Hathway Cable & Datacom Limited (Hathway). Under the scheme, DEN, Hathway and TV18 will merge into Network18 with effect from February 1, 2020, subject to receipt of necessary approvals. The scheme seeks to consolidate RIL’s media and distribution business spread across multiple entities into Network18. The consummation of the scheme would cause TV18 to be subsumed into Network18. ICRA will continue to monitor the developments until the conclusion of the transaction. Key rating drivers and their description Credit strengths Strong parentage of TV18; strategically important business for RIL in the media and entertainment sector – ICRA derives strong comfort from the parentage of TV18, a 51.17% subsidiary of Network18. RIL is the sole beneficiary of IMT, which holds the majority stake in Network18. RIL is India’s largest private sector enterprise with presence across the energy value chain, apart from retail, oil marketing and telecom sectors. ICRA expects the ultimate parent, the RIL Group, to continue providing support to TV18, whenever required, as it is a key player in the media value chain that RIL is focusing on. The company’s strong parentage can help it meet any short-term funding mismatch and provide considerable refinancing flexibility. The RIL Group considers the media businesses as a key element for its telecom thrust and the digital businesses and a key content provider for the telecom operators. The latter is likely to benefit from synergies with the telecom venture and the overall increasing 4G and broadband penetration. The Group’s commitment to the media business was reiterated by the stake increase during Q4 FY2018 in TV18’s key JV, Viacom18, to 51% from 50%, thereby providing operational control to TV18. Strong bouquet of channels across genres with healthy market share in viewership ratings and advertisement revenues – The standalone business profile of TV18 comprises the general and business news channels—CNBC TV18, CNBC Awaaz, CNBC Bajar, CNN News18, News18 India and regional news channels. At the consolidated level, including its key JV, Viacom18, the company’s business profile includes Hindi and English GECs, infotainment, regional entertainment and news channels, as well as the content-asset monetisation business. TV18 thus has a strong bouquet of channels across genres, as reflected by its healthy market share in viewership ratings. Viacom18’s share of entertainment viewership has remained steady at ~10.7% in Q2 FY2021, while its share in overall news genre has moderated to 8.7% in Q2 FY2021 from 10.6% in FY2019 (source: company presentation/annual report). Improvement in consolidated profitability indicators during FY2020 and H1 FY2021 – While the profitability of TV18’s standalone business remained constrained during FY2020 due to the high operating leverage of the news business, there has been a significant improvement in its consolidated profitability aided by higher syndication revenues and broad- based cost controls. Furthermore, despite the adverse impact of Covid-19 on advertisement revenues during H1 FY2021, the company was able to report a strong operating profit margin of 11.7% during H1 FY2021 (against 7.9% in H1 FY2020) on a consolidated basis aided by broad-based cost control measures. Thus, the company’s consolidated debt protection metrics have improved, as reflected by total debt / operating profit before depreciation, interest and tax or total debt/ OPBDITA of 2.7 times as on March 31, 2020 and 3.6 times as on September 30, 2020, over 5.1 times as on March 31, 2019. 2 Credit challenges Standalone financial profile remains modest – While the consolidated financial risk profile has improved aided by performance of the Hindi GEC and regional GEC businesses, the company’s standalone financial profile has remained modest since TV18 has been extending financial support to its parent, Network18. The company’s standalone revenues remained subdued in FY2020 due to the impact of the economic slowdown and subsequently in H1 FY2021 due to the impact of the pandemic on the advertisement revenues. With a high operating leverage and certain regional news channels in gestation, the company’s standalone profitability remained under pressure during this period. The company’s standalone debt levels had increased to Rs. 864.8 crore as on March 2019 over Rs. 423.0 crore as on March 31, 2018, largely to support Network18’s investment and loss-funding requirements. However, the debt levels have remained stable since FY2019. Due to low OPM and high debt levels, the company’s standalone debt and interest coverage indicators remain weak. Gestation losses of new channels and continued investments in VOOT impacting profitability – The company launched three news channels, three RGECs (including two high definition (HD) feeds) and one infotainment channel in FY2017. Furthermore, it launched a Tamil GEC in Q4 FY2018 and a Kannada movie channel during Q2 FY2019 and VOOT International, a digital initiative, in Q4 FY2019. VOOT Kids and VOOT Select, its subscription offering, were subsequently launched in Q3 FY2020 and Q4 FY2020 respectively. The gestation phase of these channels and the digital initiatives has moderated the company’s OPM. The content and other investments in VOOT are likely to continue, given the significant potential of the digital platform. Its ability to monetise the same through a sustainable business model (such as subscription revenues which is currently in a nascent stage) over the medium term will be crucial. Additionally, the company’s regional news portfolio remains in scale-up mode, further impacted by the ongoing pandemic.