The fine print

With one more TV news channel going public with an issue of shares, the question arises: what is it that is making TV companies trade at lofty valuations? New Delhi Television (NDTV) trades at a trailing 12-month price-earnings multiple of 326, and investors are willing to pay 208 times TV Today's 12-month earnings. Stocks like Zee (P/E multiple of 69), Sun TV (multiple of 67), and Television Eighteen (51) trade at relatively low discounting, but remain almost unreal when compared to the Sensex, which trades at 23 times. On the other hand, some (though not all) stocks in the print media sector are relatively cheap. Deccan Chronicle, the largest print media company in terms of market capitalisation, trades at a P/E multiple of 28. Dainik Jagran, the largest listed print media company based on 2005-06 sales, has a P/E multiple of 33. But it is also true that HT Media trades at 115 times its earnings, while Mid-Day is even more expensive, at 174 times.

In general, when compared to the print media, investors seem to be willing to pay a lot more for television companies. One reason for this stems from the growth potential that the TV industry has. There are 68 million cable and satellite households, a number that is expected to grow to 90 million by 2010. The television industry is likely to grow at about 24 per cent a year, according to a FICCI-PricewaterhouseCoopers study. It is not that the Indian print media is struggling like its counterparts in the West; but when compared to television, the growth rate projected is low at 12 per cent a year.

It is possible that, since much of investment wisdom is governed by current thinking in the US, investors are biased towards television stocks because of global perceptions of which way the media industry is moving. In the US, the print media is dying a slow death. Print subscription sales are on the decline, advertising is moving to other media, and major newspapers put on the block are not finding buyers. The Indian reality is very different, with a growing population, rising literacy and higher incomes all contributing to impressive growth in newspaper sales--and with that, advertising revenue. That explains why newspaper titles are still proliferating and why every major newspaper house has expansion plans. On television's side, the conditional access system and direct-to-home service will do away with under-reporting of the subscriber base for the channel companies, and thus earn them more money.

Where print scores is in cash flows. HT Media had a consolidated cash profit (profit after tax plus depreciation) of Rs 79 crore in 2005-06 (and much more in 2006-07, judging by the first half's numbers), while Deccan Chronicle had a consolidated cash profit of nearly Rs 92 crore. On a consolidated basis, NDTV had a cash profit of only Rs 13.4 crore, while TV 18 had cash profit of Rs 50.8 crore. But stock market valuations are about the future, and analysts expect the TV companies to do better. Based on FY08 assessments, Deccan Chronicle trades at 17.2 times estimated earnings. Others like HT Media, Jagran Prakashan and even TV 18 trade at 20-23 times expected earnings. Zee and NDTV are more expensive, commanding P/E multiples of 30 and 44, based on FY08 estimates. If the stock market is right, the future belongs more to television than to print.