Television Eighteen India - TV18 - Initiating Coverage - Reloaded - Buy - Elara Capital

• Rating : Buy
• Target Price : INR102
• Upside : 32%
• CMP : INR77 (as on 17 May 2010)

TV18 – Reloaded

The best financial news asset

TV18 (Television Eighteen India Limited) runs the best known media assets in the business news and information space. It owns number one English and Hindi business news channels, the most successful Indian business news website, and the best known B2B and B2C business information catalogue brand. We see TV18 as the best play in the business news space, as consumption of financial media stages a secular upturn in the country.

Multiple setbacks in FY09…

TV18 suffered heavily as the ad market for business news space shrank in H2FY09 onwards, while rising operating costs, due to many onetime expenses, crippled the operating performance. Further, debt funded growth accentuated negative operating leverage resulting in losses at both standalone as well as consolidated level in FY09 and H1FY10.

…on course to a speedy recovery

The company has taken multiple measures to control costs the effect of which can be seen in 9MFY10 with costs dipping 20%-30% across all businesses. TV18 has recently concluded its INR5.1bn right issue to deleverage the balance sheet and take care of funding needs for the medium term. As the topline growth has returned starting Q3FY10, across businesses, TV18 is all set to report an improved operating performance going forward.

Expecting profitability in major divisions by FY12E

We expect TV18 to report an EBITDA of INR750mn at standalone level in FY12E, helped by a topline CAGR of 12% and an operating expenses growth of 6% during FY10E-FY12E. Web18 is expected to report profits by FY12E, growing at a CAGR of 30%, as is the case with Newswire18. However, Infomedia18 is expected to remain in losses as the company goes through a restructuring exercise, thus dragging the consolidated performance down.

Valuation

TV18's stock has languished for the most part in the past 12 months due to rising operating losses, stretched balance sheet and acquisition of loss making Infomedia18. However, all of these issues are expected to get addressed in the coming few quarters, which would provide fillip to the sock price performance. We have valued the multiple businesses of TV18 on an SOTP basis, as the consolidated performance is likely to be clouded by losses from Infomedia18. We arrive at an SOTP based one year forward target price of INR102, taking into account value of news, print, web and investments. We initiate coverage on the company with a Buy rating on the stock.

Source : Equity Bulls

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