TV18: Still in the red

The boom in the markets is filtering down to the financial news space but the intense competition and its new business investments means that the company is still bleeding as losses continue to mount.

Television Eighteen Group (or TV 18 as it is popularly known) saw some traction in earnings during Q2FY10 quarter. Consolidated revenues were up 15.5% q-o-q but still down 4.8% y-o-y. The bad news in the form of negative EBDITA (Rs 1 crore) continued this quarter, as against Rs 3.7 crore in the last quarter. Adjusted EPS was Rs 5.45

Revenue split

Segment-wise analysis shows that the core news operations business revenues grew 13.88% q-o-q to Rs 64.75 crore. However, expenses have gone up resulting in operating margins slipping by 160 bps sequentially from 17.1% last quarter to 15.5% in 2Q FY10.

New media revenues are slowly moving on the uptick and Web 18 revenues were up 12 % q-o-q and about 5% y-o-y. Expenses dropped 80% compared to the corresponding quarter last year and have contained operating losses to Rs 5 crore.

The Newswire business is back in black and posted a marginal surplus of Rs 0.2 crore with operating margins going up by about 250 basis points. However, revenue growth here has been a relatively slower ~ 6% q-o-q. Infomedia, its Print segment, saw a growth of 22.7% in q-o-q revenue. However, higher expenses post-merger have seen operating losses increase.

Key concerns

The continued losses, debt repayments, working capital requirements and investments in new ventures are key concerns. However, the company’s balance-sheet worries will be partly mitigated as it has recently concluded a rights issue of 6,00,07,121 equity shares of Rs 5 each at a premium of Rs 79 per share to existing shareholders, aggregating Rs 504.06 crore. It also negotiated a 10 million USD equity infusion into Web 18 through an issuance of preferred stock to a Nokia sponsored fund.

The company has indicated that the market outlook seems improved and it expects to see more revenue traction going ahead - especially for its web, wire and TV segments ending four quarters of de-growth. While DTH, IPTV and CAS implementation bodes well for subscription revenues in the longer term, ad-spend is the core revenue source in the medium term.

The revival in the capital markets are the key to the improved outlook with the competitive environment being a key risk. However, the market share that the two financial news channels enjoy (CNBC TV18- 62% and CNBC Awaz-61% as per TAM data released Oct 21st, 09) provides an important barrier as the brand and loyalty is quite well entrenched. CNBC-TV18 actully gained market share this quarter after slipping to 60% in the first quarter of FY10. CNBC Awaz, the Hindi business news channel, has however slipped from 68% in 2008, a trend which should be monitored.

The stock trades at rich valuations (Rs 85.60 at close Oct 22, 09) given that consensus analyst forward estimates expect per share losses of 5.5 Rs in FY10 and Rs 0.9 in FY11 as per Bloomberg. Peer Zee News (Rs 43.90 at close Oct 22, 09) is valued at a P/E of 20.6x FY10 and 15.68 x FY11 consensus estimated EPS. However, the other news major, NDTV is estimated to clock in losses of Rs 33 per share in FY10 and Rs 15.68 in FY11 and closed at Rs 151.15 on 22 Oct 09.

That TV18 as a stock has distinctly under-performed doesn’t come as a surprise.