Betting too big

IPO REVIEW

Raj TV is a distant second in the Tamil television market, and its diversification is in uncharted territories.

The Indian entertainment industry would perhaps be incomplete without its various regional segments in languages like Bengali, Marathi and Telugu.

The Tamil entertainment industry has stalked Bollywood and the Hindi entertainment industry across the globe, and enjoys a following not only among the Tamil speakers in India, Sri Lanka, Malaysia and Singapore, but also among audiences of Japan, Canada, South Africa, UK and US.

Raj TV Network, with its two channels, Raj TV and Raj Digital Plus, is the second largest broadcaster by viewership in the Tamil entertainment industry.

Now, the company is looking to expand into uncharted territories of a multilingual youth focused entertainment channel in Hindi and English as well as strengthen its grip on the Tamil entertainment market by adding to its capacity in the form of a new studio and upgrading production facilities.

To fund this expansion, it has announced an issue of 3.57 million shares in the price band of Rs 221 at the lower end, and Rs 257 at the upper end. The issue comprises of a fresh issue of 2.27 million shares, and a sale of 1.3 million shares owned by the promoters. The issue size ranges between Rs 78.9 crore and Rs 91.7 crore.

Raj TV is a Tamil general entertainment channel, while Raj Digital Plus is a 24-hour movie channel. The company now plans to launch a new youth entertainment channel in with programming in English and Hindi.

Apart from this, there are plans to broadcast the existing Tamil channels across the world, broadcasting sub-titled Tamil content. The new channel is scheduled to be launched by the second quarter of FY07, whereas the overseas broadcasting of the existing channels is scheduled to be commissioned by FY08. 
 

SHOOTING IN THE DARK
(Rs crore)	FY06	FY07E	FY08E	FY09E
Revenues	31.95	39.33	55.06	71.58
Net Profit	3.56	13.16	13.42	21.47
EPS (Rs)	-	2.74	11.86	16.52
P/E @ Rs 221	-	80.70	18.63	13.38
P/E @ Rs 257	-	93.80	21.67	15.56

"We expect to see the profits coming in from international broadcasting of Raj TV and Raj Digital Plus by FY09," says B Sathya Prakash, senior vice president, Raj TV Network.

In addition, the company owns exclusive rights to about 1,300 Tamil films for all media including home videos and Internet streaming. This library is valued at Rs 374 crore according to the realisable value of each film categorised in different classes according to its revenue generating potential.

In new media, the company already broadcasts content via Internet streaming on sites like Galatta.com and Numtv.com, and plans to foray in mobile streaming of content.

The issue is aimed at providing the capital required for setting up a new studio, upgrading existing facilities, launching the new channel and international broadcasting of existing channels.

Although the investments are to be made in tangible assets, and the expansion plans are in place, its performance has been inconsistent over the past four years.

Also, the performance of the new channel as well as the international broadcast initiatives is questionable. It has no experience in Hindi and English programming, and the youth market is crowded anyway. The international foray is unlikely to be a money spinner either.

In its core business, Sun TV is a formidable force, clocking revenues of Rs 322 crore in FY06, while Raj TV's revenues were barely a tenth of that.

Raj TV is a distant second in its core business, its diversification is not appealing, and even if the P/E is relatively low, investors may want to explore other, better options.

Issue Opens: 14 February, 2007
Issue Closes: 23 February, 2007