Weak Signals

PENNY WISE

TV Today is looking at overseas markets and local content to broadbase revenues. Analysts, however, are not convinced.

TV Today has been off the radar screens of analysts for quite some time. The reason? Too much dependence on Aaj Tak and a lack of major growth drivers for the future. The situation has been further aggravated by the jaded results posted for the June quarter.

Even though Aaj Tak commands an undisputed leadership position in its category, it does face stiff competition from other channels such as Star News, NDTV India and Zee News.

Disappointing performance

TV Today posted dismal results in June, even while competitor NDTV reported a decent revenue growth. At Rs 35.11 crore, TV Today's revenues showed a meagre y-o-y growth of 3.11 per cent.

This is a reflection of the pressure on advertising revenues of Aaj Tak in the highly competitive Hindi general news space and lack of any other major source of revenue. The company's operating profit was down 50.55 per cent at Rs 6.27 crore as compared to the same quarter last year. 
 

FINANCIALS
(Rs crore)	Q1FY07	Q1FY06	Q1FY05
Net Sales	35.11	34.05	34.49
y-o-y growth (%)	3.11	-1.28	""
Operating Profit	6.27	12.68	13.41
y-o-y growth (%)	-50.55	-5.44	""
OPM (%)	17.86	37.24	38.88
Net Profit	1.48	5.81	6.16
y-o-y growth (%)	-74.53	-5.68	""
NPM (%)	4.22	17.06	17.86

Rising costs

Personnel as well as advertising and sales promotion costs dragged down TV Today's margins. The employee cost for the company shot up not only because of wage hikes but also on account of the launch of Delhi Aaj Tak. Given the competitive scenario, these costs will continue to put pressure on margins going forward.

As per analysts, around 10-12 per cent of the operating expenses were attributed to the newly launched Delhi Aaj Tak. However, even after ignoring this, operating expenses grew by 20 per cent y-o-y, against a 3.1 per cent growth in revenues.

Increase in cable transmission charges, for carrying Aaj Tak on prime band, too, was responsible for the slump in margins this quarter.

May go pay

Analysts however are looking forward to Q2 and Q3 results to establish a firm opinion on the company before writing it off. This is so because there is a seasonality in this business and results are typically better for these two quarters due to the festive season.

Also, the company is taking initiatives to revive itself. TV Today launched a Delhi-centric channel, Delhi Aaj Tak, in late May taking the total count of its channel to four.

According to analysts, the company is expected to launch a few more niche channels in the news space and has earmarked a capex of Rs 25 crore for the same.

The downside of launching such niche channels is that advertisement revenues get restricted as these channels attract only local advertisers. The company is also planning to switch Aaj Tak, hitherto free-to-air into a pay channel by the end of this fiscal.

Analysts perceive that the launch of Delhi Aaj Tak is a step in this direction. These niche channels, they say, will enable the company to structure its bouquet in such a way that it can command good subscription rates when the company decides to go pay.

Also, it will cushion the combined market share of group channels from dipping. "However, given that all other Hindi news channels are free-to-air, it is not going to be an easy task," states a report from Edelweiss Securities.

"But even if this happens, TV Today will have limited pricing power," says an analyst from a leading broking firm. "If we compare TV Today with its rival NDTV, TV Today's bouquet is skating on thin ice. NDTV has three strong channels in each of the categories it operates in""NDTV 24x7, NDTV India and NDTV Profit. TV Today lacks the business part completely. And in the English news space, Headlines Today does not command a leadership position," he adds.

Analysts are also worried that if the channel goes the pay way, revenues arising from advertisements could take a hit in the short-term. The going is getting tough for Headlines Today with the launch of CNN-IBN and Times Now. It will get tougher when Channel 7 is revamped. Also, as per the Edelweiss report: "The outlook on ad revenues of Headlines Today and Tez is bleak."

Taking the DTH route

Last year, TV Today tied up with a US-based DTH operator, Echostar to distribute two of its channels""Aaj Tak and Headlines Today.

Echostar is the second-largest DTH operator in the US with more than 1.15 crore subscribers. In addition, it is also scouting for subscription deals in countries like Canada, Australia, New Zealand, and South Africa to distribute its channels.

"Such initiatives augur well for the company. The company airs the same content and therefore incurs no extra cost. Thus the subscription revenues directly add to the bottom line," says an analyst.

But for this quarter, the contribution to revenues from this tie-up was minuscule. Edelweiss Securities has projected Rs 4.1 crore of international subscription revenues in FY07. It expects TV Today to get an average of 75,000 subscribers in FY07 and the net average revenue per user to be about $1.

Future unsecure

However analysts do not see any of the initiatives taken to be great growth boosters. Even though the stock does not seem expensive when compared to its peers""NDTV and TV 18""a lack of growth drivers make it unattractive.

At the current market price of Rs 75.3, the stock trades at 18.6 times its trailing twelve months earnings. As per estimates of Edelweiss Securities, the stock is trading at 15.4 times and 13.4 times its expected FY07 and FY08 earnings.