NDTV - Walking the talk

INVESTMENT COUNTER / IPO WATCH

If you asked Peter Lynch or Warren Buffett whether they would subscribe to the New Delhi Television's (NDTV) forthcoming public offer, in all likelihood they would have said yes.

Star US fund manager Peter Lynch would have passed it considering the company's visibly impressive business, while Buffett would have given credit for NDTV's great management and potentially large business opportunity.

If you are one of the 46.3 million NDTV viewers in the country, you would appreciate NDTV is in a great business. If you are not, don't wonder any further. Just read on.

The FIR
NDTV, headed by television personality Prannoy Roy, is one of India's leading broadcasters and producers of news and current affairs programmes. It runs two news channels: NDTV 24X7 in English, and NDTV India in Hindi.

It is planning a Rs 109-crore book-built public issue, in a price band of Rs 63-70 per share with a face value of Rs 4. Of Rs 109 crore, NDTV will net Rs 55 crore, after paying off the sellers offering their equity stake.

Of this, Rs 20 crore will go into pre-payment of loans, Rs 20 crore will fund the company's working capital requirements and the balance Rs 15 crore will be applied towards general corporate purposes.

 

Issue snapshot
Opens	April 21, 2004
Closes	April 28, 2004
Size	Equity shares of Rs 4 each, aggregating Rs 109 crore
Price band	Rs 63-Rs 70
Lead managers	JM Morgan Stanley, Kotak Mahindra Capital, ICICI Securities
Listing	BSE, NSE

Reality bites
NDTV has established as India's No 1 news channel based on the TAM viewership data for a target group above 15 years for the four weeks ended March 20, 2004. In English news, NDTV is an undisputed leader with a market share of 37 per cent, with a reach of 19.58 million viewers.

In Hindi, it is No 2, with a market share of 17.3 per cent, trailing behind Aaj Tak which commands a 31.5 per cent share. The company is strong on the programming side. As per TAM viewership data, all the top 10 programmes belonged to NDTV 24X7. Of the top 200 programmes, 180 were produced by NDTV.

In Hindi, however, NDTV lagged behind, with NDTV India having just one programme in the top 10 list and 64 in the top 200 list. Aaj Tak, the leader in Hindi news had nine out of top 10 and 98 out of top 200 to its credit.

The hard reality, however, is that its revenue numbers for the first nine months of fiscal 2004 do not really reflect its leadership position as a news broadcaster. NDTV recorded a net loss of Rs 46.41 crore, on a total income of Rs 37.14 crore.

 

Reaching out
	Viewers (million)	Market  share (%)
English (all India)
NDTV 24X7	19.58	37.1
BBC World	11.78	17.1
CNBC TV 18	9.99	28.6
Headlines Today	5.07	11.4
CNN	4.31	5.7
Hindi (all India)
NDTV India	29.1	17.3
Aaj Tak	30.45	31.5
DD News	28.97	15.2
Star News	25.51	15.5
Zee News	23.08	12.1
Sahara Samay	20.27	8.4
TAM viewership data for a target group of viewers above 15 years for four weeks ended March 20, 2004

The X factor
NDTV's performance in the future will be driven by a number of external factors. Firstly, adspend as a proportion of GDP in India is just 0.44 per cent, lower than in most other developing countries like Brazil (0.83 per cent), Philippines (0.62 per cent) and South Korea (0.61 per cent). As the economy grows, adspend in India must increase, enlarging the pie for media companies.

Secondly, the proportion of total adspend on television has been increasing at the cost of print. In 2002, the television broadcasting industry's ad revenues accounted for 41 per cent of the amount spent on media advertising.

Ironically, 85 per cent of the English adspend went into the print media while only 15 per cent was through electronic media. NDTV expects this ratio to approach 50:50 going forward.

Obviously, the company, with a leadership position in English news, stands to gain. Thirdly, subscription revenues, which are yet to pick up in India, should become a significant revenue stream some time in the future.

 

Financials
	31-Dec-03 (9 months)	31-Mar-03 (12 months)
Revenue	36.74	103.02
Other income	0.39	2.45
Total income	37.13	105.47
Employee cost	29.88	35.69
Production cost	19.00	16.88
Marketing related cost	10.35	-
Admin and other cost	15.23	16.96
Total expenditure	74.50	69.55
EBITDA	-37.41	35.92
Interest	1.22	0.75
Depreciation	6.80	10.19
Defered tax	0.98	-0.40
Net profit	-46.41	20.66

The big fight
Clearly, there is a dichotomy. NDTV's premier position has not translated into profits. So the big debate is: Should you go by the immense business potential that exists for NDTV, or trust the published financial numbers which portray a rather dismal picture? Discounting the fact that it is only the first year of operations for NDTV as a broadcaster, things don't look too bad.

The company has been getting its fair share of revenues for its English channel, but its Hindi channel has not got its due till December 2003. Analysts point to the lag effect. It takes time for an upgrade in ratings to translate into ad revenues.

Sources say the company has already seen a significant ramp up in its Hindi ratings. According to them, of the Rs 315 crore ad spend in Hindi news channels in fiscal 2004, Rs 140 crore went to Aaj Tak; Zee and Star cornered around Rs 65-70 crore each; Sahara got some Rs 20 crore and NDTV India got Rs 22 crore.

In other words, the company has nearly doubled ad revenues in NDTV India in the last quarter. NDTV 24X7 is said to have closed the year with ad revenues of Rs 41 crore (Rs 24.8 crore for the nine-month period).

However, a cause of worry is the company's high employee cost at 40 per cent of total expenditure in the nine-month period. This could affect the company's profitability, particularly in bad times.

However, considering that employees are the life blood of a media company it may not be a bad strategy either. As a matter of fact, the management stands vindicated as the company's attrition rate was only 6 per cent last year, perhaps the lowest in the industry.

Some analysts point to the cyclical nature of the business as a concern. They say the fact that NDTV is not part of a larger group can be a disadvantage. NDTV is a broadcaster with just two news channels and its ability to offer a value proposition to customers by way of bundling of advertising options is limited.

Valuations look cheaper
What's the call on the stock? For FY05, analysts expect NDTV to record revenues of Rs 75 crore for 24X7 and about Rs 60 crore for NDTV India. Overall, they estimate the company to record sales of Rs 150 crore in FY05 and Rs 190 crore in FY06.

The company is expected to get back into profits in FY05 with a net profit of Rs 25 crore. FY06 profits should surge to Rs 50 crore. NDTV is asking for a price-earnings ratio of 15.75 (Rs 63) to 17.02 (Rs 70) based on FY05 earnings and 8.51 (Rs 63) to 7.87 (Rs 70) on FY06 estimates.

And based on the company's diluted equity, NDTV would command a market-cap of Rs 394 crore to Rs 425 crore (for price band Rs 63-Rs 70). Competitior TV Today currently commands a market cap of Rs 697 crore and a P/E of 17.7 times FY05 earnings.

Clearly NDTV looks significantly cheaper. Its leadership position in English news, ramp up in its Hindi ratings, quality of its personnel and infrastructure and the credibility and leadership of Prannoy Roy add immensely to its lure.