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TV Today can expect its public issue to sail through

TV Today Network (TVTN), which broadcasts the news channels Aaj Tak and Headlines Today, is the latest initial public issue to hit the market.

The timing of the issue could hardly get better for the company, what with the markets continuing to soar new highs-the Nifty closed at 1736 yesterday - just 20 points short of its all-time closing-high reached in February 2000.

With Aaj Tak being the market leader in the Hindi News segment with a 29.1 per cent market share, and a phenomenal growth in both revenues and net profit since its inception in December 2000, the appetite for the issue is expected to be good.

The issue will be made at a price between Rs 80 to Rs 95 per share, which results in a valuation of 12 to 15 times estimated FY04 earnings. Television Eighteen, which broadcasts the business news channel 'CNBC' gets a valuation of around 25 times estimated FY04 earnings.

The two companies, however, are hardly comparable since they cater to different audiences. More importantly, according to viewership data, while TVTN's two news channels reach 25 million homes, CNBC reaches just 3.9 million homes, simply because it caters to a niche audience looking for only business news.

But while on the one hand TVTN enjoys a much wider coverage, it also has to cope with higher competition in its segment. What's important is that revenue growth is expected to continue at a reasonably fast pace, thanks to different factors such as an increase in reach-there are still a high number of TV homes in the country which still don't have cable connections.

Apart from that, advertising revenues are expected to rise on account of the pick up in the economy and also because revenues from Headlines Today will start coming in.

Finally, there is also the scope of subscription revenues going forward. Importantly, since TVTN's cost structure is largely fixed in nature, around 75 per cent of incremental revenues is expected to flow into EBITDA.

Now for the risk factors: DD News recently launched a 24-hour news channel, and, according to viewership data, it has already notched up a 20 per cent market share. As a result, Aaj Tak's share has fallen from 41 per cent in end-September to 29 per cent in November, which is clearly a cause for concern.

Yet, what works in TVTN's favour is its positioning of being an unbiased news broadcaster, which, analysts feel, will help it retain a large chuck of its viewers.

Another point of concern is that operating margins for the first four months of the current fiscal has fallen 300 basis points to 46 per cent compared with 49 per cent in FY03. According to the management, this is because revenues for the Headlines Today hadn't kicked in, although expenses had.

Advertising revenues from the channel will come in from January, and with that margins may go back to earlier levels. And although the channel enjoys a much lower market share compared with Aaj Tak, it's not expected to impact overall profitability of the company. This is because Headlines Today uses the same content as Aaj Tak and has little incremental cost.

All told, given the exuberant times in the stock markets, the issue should not only get a decent response, but it also offers scope for decent "listing gains".

Tata Chem's ECB gambit

Tata Chemicals plans to raise external commercial borrowings (ECBs) worth $20 million will not impact its interest outgo substantially for the second-half of FY04. This is simply because the proceeds will be used for replacing high-cost debt and accounts for only around 12-13 per cent of the company's expected debt position of Rs 600 crore at the end of FY04.

While the debt reduction in the second-half of the year may not be significant, for the whole FY04 it will be quite significant at Rs 300 crore since the company has already repaid around Rs 200 crore in the first half.

The ECB is being raised at 3 per cent, and may effectively cost slightly more after including the cost of hedging. This compares well with the current cost of debt, which is around 7-8 per cent, according to analysts.

The more important issue is how Tata Chemical's performance and debt position will look after the merger with Hindustan Lever Chemicals, which is currently awaiting clearance from the Punjab High Court. Even though Tata Chemicals has been reducing debt, Hind Lever Chemicals has increased its debt.

In FY03, the company's debt-equity ratio increased 3 times compared to the previous year. Operationally, while Tata Chemicals reported a 59 per cent jump in profits before extraordinary items in the September quarter, Hind Lever Chemicals reported a 67 per cent decline in its profits, owing to a rise in cost of raw materials such as phosphoric acid and ammonia.

Further, in the September quarter, the company's operating margins fell 200 basis points to around 2.8 per cent. However, the poor performance by Hind Lever Chem hasn't affected the companies' stock prices, which have appreciated 65 per cent since end-September.

With contributions from Mobis Philipose and Sameer Ranade