The broadcaster’s business model is dependent on one genre, making it somewhat risky in a challenging environment.
If TV Today has been an outperformer in recent weeks, it’s because the buyback of shares has been in the offing. On Tuesday, the stock rallied all the way to Rs 85.70, but closed much lower at Rs 74.
At this price, the stock trades at around nine times the estimated 2009-10 earnings, which might not seem too expensive given that the flagship ‘Aaj Tak’ channel is the market leader in the Hindi news genre.
But after growing at 22 per cent last year, revenues are expected to grow at just 17 per cent this year and moreover, could taper off to 13 per cent next year, in what is clearly a difficult operating environment.
In the December 2008 quarter, revenues actually fell 6 per cent and the management concedes that it hasn’t been able to use all the inventory it had. Also, while advertising rates haven’t been reduced so far, the broadcaster may have to bring down rates if volumes don’t improve.
And subscription revenues will take their time coming. In the near term, TV Today could be a big gainer because of the forthcoming elections though it’s possible the IPL could take away some advertising.
With costs — especially those on carriage fees and employees — unlikely to come down in the near future given the fierce competition in the industry, operating profits which came off a sharp 43 per cent in the December 2008 quarter will possibly fall this year before recovering in 2009-10 on a low base.
Analysts are concerned that TV Today is heavily dependent on Aaj Tak and that it hasn’t really diversified the portfolio beyond the news genre so as to scale up faster. While the company is using some of the Rs 130 crore of cash that it has, to buy back the shares, the money would have been better spent on the business.
