TV TODAY NETWORKS LTD : SAABSE TEJJ !!!

Scrip Code: 532515 / TVTODAY

CMP:  Rs. 227.80; Buy at current levels.

Short term Target: Rs. 260.00; Medium to Long term Target: Rs. 300; STOP LOSS – Rs. 209.50; Market Cap: Rs. 1,356.50 Cr; 52 Week High/Low: Rs. 243.85 / Rs. 73.25; Total Shares: 5,95,48,115 shares; Promoters : 3,42,50,171 shares – 57.52 %; Total Public holding : 2,52,97,944 shares – 42.48 %; Book Value: Rs. 63.66; Face Value: Rs. 5.00; EPS: Rs. 13.79; Dividend: 20.00 % ; P/E: 16.51 times; Ind. P/E: 32.68; EV/EBITDA: 8.48.

Total Debt:  ZERO Cr; Enterprise Value: Rs. 1,301.58 Cr.

TV TODAY NETWORKS LIMITED: TV Today Network Ltd was incorporated in December, 1999 and is based in Noida, India. The company is a subsidiary of Living Media India Limited. TV Today Network Limited is engaged in television and radio broadcasting business in India. It operates news channels, including Aaj Tak, a news channel; Headlines Today, a 24 hours English news channel; Tez, a Hindi news channel; and Dilli Aaj Tak, a metro centric channel. The company came out with an IPO of about 1,45,00,000 lakh shares of Rs. 5 each in December 2003 at Rs. 95 per share raising Rs. 137.75 Cr. The company, TV Today is in the business of TV Broadcasting and Radio Broadcasting. TV Today Network (TV Today) is a part of the India Today Group and a leading news broadcaster in India. It operates as a subsidiary of Living Media, the holding company of the India Today group of publications. Aroon Purie is the Chairman of Living Media. He has been associated with the news business for the past three decades and consistently maintained the company as a leader owing to his vast experience. TV Today is one of the leading news broadcasters in India with four channels viz. Aaj Tak, Headlines Today, Delhi Aaj Tak and Tez distributed by MSM Discovery. TV Today is the first Indian broadcaster to uplink a 24 hour Hindi news channel from India. The company has an undisputed leadership position in the Hindi news segment through Aaj Tak. In addition, Radio Today Broadcasting Ltd, a fellow subsidiary, merged with the company extending the presence of TV Today to the radio segment under the brand Oye 104.8 FM. Its subsidiaries are T.V Today Network (Business) Ltd, Thomson Press India, Today Merchandise Pvt Ltd, Radio Today Broadcasting Ltd, and Mail Today Newspapers Pvt Ltd, Integrated Databases India Ltd. TV Today Networks Ltd can be locally be compared with Zee Entertainment Media Ltd, Zee Media Corporation Ltd, Broadcast Initiatives Ltd, Hinduja Ventures Ltd (parent), Balaji Telefilms Ltd, B.A.G Films & Media Ltd, New Delhi Television Ltd, Sri Adhikari Bros Tele Network, Sun TV Network Ltd, Network 18 Media & Investment Ltd and TV18 Broadcasts Limited, Raj Television Networks Ltd, and Globally with New Media Investment Group Inc of USA, Starz Group of USA, Dreamworks Animation SKG of USA, Cairo Communication S.p. A of Italy, Chime Communications Plc of UK, Constantin Medien AG of Germany, Sony Corp of Japan, CTC Media Inc of Russia, Mediaset Espana Comunicacion, S.A of Spain, Alibaba Pictures Group Ltd of Hong Kong, Asian Pay Television of Singapore, Fairfax Media Ltd of Australia, Hong Kong Television Network of Hong Kong, Times Media Group Ltd of South Africa, Naspers Ltd of South Africa, Caxton and CTP Publishers and Printers Ltd of South Africa.

Investment Rationale:

TV Today Network Ltd is just 15 year young company owning India’s four prestigious TV channels -AAJ TAK, HEADLINES TODAY, TEZ and DILLI AAJ TAK. There is also one radio broadcasting division of this company. Company also has a trade investment comprising of equity shares worth Rs. 45 Cr in an associate company called Mail Today Newspapers Pvt Ltd. TV Today Network Ltd is promoted by the media baron Aroon Purie, better known as the owner of Living Media, the publisher of India Today and a host of other publications bearing the suffix 'Today'. Living Media India Ltd, the holding company owns 57.1 % of the equity stake. Reliance Capital is the second largest shareholder with a holding of 13.6 %. TV Today operates as a subsidiary of Living Media, the holding company of the India Today group of publications and also the Aditya Birla group holds a 27.5 % stake in Living Media currently. There are reportedly some around 720 media channels on air today offering their channels in India. News channel garners revenues mainly from advertisements, while the cost of transmission is their major expenses. TV Today with its flagship channel Aaj Tak has been able to maintain its dominant position in the fiercely competitive in Hindi news segment for over a decade. Its news segment, targets directly on the “decision makers” in the family, and also the company enjoys a good portion of the advertisement share, which is expected to rise even further as literacy and income levels rises. With digitisation in phase III and IV cities are in progress, TV Today would be able to monetise better its reach as it enjoys a far stronger position in the smaller cities and towns in the Hindi speaking belt. The News segment forms just 7 % of TV viewership, which garners 21 % of total TV advertisement. TV Today, being a leadership position in the Hindi news segment, commands 10.9 % of total TV news advertisement. The television industry according to the Ficci KPMG report 2014, witnessed a growth of 12 % CAGR in CY08-13 despite the economic slowdown and the industry is expected to grow at 16.2 % CAGR in FY13-18E, rising from Rs. 417 crore at the end of 2013 to Rs. 885 crore by the end of 2018E. The number of television households in India is also expected to increase to 19.1 Cr from 16.1 Cr currently. The television industry dominates the domestic media & entertainment industry forming 45 % of the total industry. The increase in the channel carrying capacity to over 1000’s of television sets owing to digitisation and revision of minimum channels to be broadcasted to 500 is expected to bring in additional subscription revenues to broadcasters. With increasing literacy rates and improving living standards, the need and desire to stay aware has increased. Share of the total news domain (composite of English, Hindi and regional news) in the overall break-up has increased from 6.2 % in 2012 to 7.0 % in 2013. This shows the growing popularity of the news domain among masses. Several new channels have started operations, helping the segment to proliferate further. There are about 392 news and current affairs channels out of a total 792 channels currently operational in the country. In the Hindi news genre, Aaj Tak, ABP News, India TV and Zee News dominate the segment. The interesting point to note is that despite the news segment accounting for 7 % of the viewership share it commands 21.7% ad revenue share. Hindi news channels have a strong ad revenue share of 8.6 %. News channels have a focused target audience and are a cheaper advertisement avenue than Hindi GECs, which makes them preferable to advertisers. Digitisation is expected to be the key contributor to growth in the media industry. Phases I and II are nearly complete in terms of set top box seeding while the focus is expected to now shift to phase III and IV cities. The full benefits are expected to start flowing in once package wise billing commences and there is a shift to the gross billing regime. As the full subscriber universe becomes addressable and leakages are plugged, broadcasters would be the biggest beneficiaries in the entire value chain, realising the highest operating leverage without incurring incremental capex. News being non-proprietary and largely non-exclusive in nature, the content is largely similar among various news channels. In such a case, the ability to break the news first or give detailed coverage of the event by sending a team to the source becomes the differentiating point. In such a case, where the content is highly homogeneous, usually the top one or two players are key beneficiaries. On those lines, Aaj Tak has been able to maintain a leadership position in the last decade. The presence of Aaj Tak in the Hindi news genre dates back to 1995 when it used to broadcast a 20-minute news programme on government controlled channel Doordarshan. Aaj Tak gained immense popularity through Doordarshan. Hence, it launched its own 24 hour news channel in 2000. Owing to its news credibility, quality live feeds and the ability to bring news at the earliest, it was soon dominated the Hindi news genre. Aaj Tak has remained the No. 1 channel in the Hindi news category ever since its launch. Other news channels like ABP News and India News are its key competitors. However, there are market share differences between the No. 1 player and the second and third players.

Outlook and Valuation: 

TV Today Network Ltd is the parent company of India’s very well-known Hindi News Channel AAJ TAK. The company enjoys greater market share in terms of viewership as well as in terms of ad revenue in Hindi language news channel. Owing to its strong presence and a viewership share of 18.5 %, Aaj Tak has been able to constantly take price hikes and dictate terms with advertisers. The company has seen an increase in inventory from 16 minutes to over 20 minutes as demand for advertisements rose in its platform. As of now, the company is maintaining its inventory at 18 minutes per hour. With a viewership share of 18.5 % in the Hindi news segment and 8.7 % of the overall news segment, Aaj Tak commands an impressive 23 % in FY13 of Hindi news and 9.2 % of overall news advertisement revenues. This signifies advertiser’s preference for Aaj Tak in a fiercely competitive segment populated with 392 news & current affair channels. According to Census 2011, around 41.0 % of the Indian population speaks Hindi, followed by Bengali (8.1%), Telugu (7.2%), Marathi (7%) and Tamil (5.9%). The demographic set-up augurs well for TV Today with its offerings in terms of Hindi news channels, which is also reflected in its higher share of advertisement revenue. Once the industry fully shifts to the cost per subscriber (CPS) model, TV Today is expected to witness an exponential growth in subscription revenue. Nonetheless, it will still take a while before higher subscription revenue starts accruing as digitisation is delayed. With digitisation, there has been an unprecedented increase in the channel carrying capacity of distributors with the total number of channels increasing from about 80 in analogue cable to over 1000 channels in digital. The increase in carrying capacity has brought a reduction in carriage costs for all broadcasters. This reduction in carriage fees is critical for news broadcasters, as for them carriage payouts are significantly higher than subscription revenues. News broadcasters shell out about 25-30 % of their total revenue in the form of carriage and placement fees. English news channels spend approximately 70 % of their distribution costs as carriage in the metros and are yet to receive an equivalent benefit in terms of subscription from the metros. Other channels such as Delhi Aaj Tak, Tez and Headlines Today form a very small part of TV Today’s topline as of now. Some of them are free to air (FTA) channels and the company plans to gradually monetise all of them. Even the channel Delhi Aaj Tak, which is a Delhi centric channel, is gaining momentum. Company’s Radio business, Radio Today Broadcasting Ltd, a fellow subsidiary, got merged with the company extending its presence of TV Today in the radio segment under the brand Oye 104.8 FM and has a presence in the six cities of Mumbai, Delhi, Kolkata, Amritsar, Jodhpur and Patiala. However, the company has been unable to keep pace with its peers in the radio segment and has been experimenting with different formats. It started off as Meow 104.8 FM for women in 2007. However, since the strategy did not click with listeners, the company re-branded itself to Oye 104.8 FM based on the “filmy” format Radio’s current contribution to the overall revenues of the company is minuscule at 4 %. Though the radio industry is expected to grow at 18.1 % CAGR in FY13-18E, company’s radio business is expected to do well. Moreover, once the regulator allows the broadcast of live news on radio, Aaj Tak may be able to leverage its dominance in the Hindi news content on radio. India is likely to witness a data and Internet revolution in the coming future, which holds good opportunity for all content rich businesses. The delivery platforms would be amplified creating more demand for the content. Mobiles, wireless internet users (mobile + dongle) have already reached about 23.26 Cr users at the end of March 2014 and the number is expected to go up dramatically. Also, when compared to the global level, India imported the highest number of smart phones. With the launch of several OTT applications and mobile applications, people can conveniently watch videos on their cell phones. This opens up more avenues for the delivery of content. TV Today’s news would also reach such additional platforms, which would open up new avenues for revenue growth. TV Today posted 24.6 % revenue growth in FY14, partly aided by higher government spending in an election year. Moreover, it already clocked in 54.1 % revenue growth in Q1FY15 on account of higher share of advertisement on news channels in the backdrop of general elections in May. As election euphoria has settled and the economy started to turn around, its revenues are expected to grow at a moderate pace and expected to clock a CAGR of 15.5 % (FY14-FY16E). Revenue growth would be primarily led by improving ad yields in the flagship channel coupled with improving utilisation in other channels. While advertisement revenues are expected to grow in tandem with the economy, subscription revenues would be directly correlated to the progress in digitisation. Advertisement revenues and subscription revenues are expected to grow at 16.4 % in FY15E and 7.5 % FY16E. The radio segment is also expected to grow at 26.5 % CAGR over FY14- 16E. Moreover, the company also plans to participate in Phase III auctions and further augment its radio footprint. This extended presence would also drive its revenues, going ahead. The company is expected to be cash flow positive and, hence, would be able to fund its capex requirements internally. The dividend payout by TV Today has ranged between 38 % and 45 % in FY11 to FY13, respectively. FY14 has been an inflection point for the company with the company’s profits nearly quadrupling from the year ago period. Consequent to this, the return ratios, RoCE and RoNW, have reached 22.4 % and 16.2 % in FY14 from 4.0 % and 3.8 % in FY13, respectively. Going ahead, with improving operating leverage and lower capex outlay, the return ratios are further expected to improve. TV today continues to enjoy best operating metrics. TV Today had been trading at an average 18x one year forward P/E during economic upturn cycle in FY04-09. The stock has traded at an average one year forward multiple of 20.3x, over the last 10 years, which covers both high and low economic cycles. However, with the economy still in the earlier phase of revival, and valuing the company at 15x FY16E which will be 25 % discount to the 10 year average P/E which gives the a target price of Rs. 300. At the current market price of Rs. 227.80, the stock P/E ratio is at 13.89 x FY15E and 11.39 x FY16E respectively. Company can post Earning per share (EPS) of Rs. 16.40 for FY15E and Rs. 20.00. One can buy this stock with a target price of Rs. 260.00 and for Medium to Long term investment it should be Rs. 300.

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	312.70	389.40	475.70	519.30
NET PROFIT (₹ Cr)	12.20	61.30	97.80	119.00
EPS (₹)	2.10	10.30	16.40	20.00
PE (x)	102.90	20.50	12.80	10.60
P/BV (x)	3.90	3.30	2.80	2.30
EV/EBITDA (x)	35.90	11.00	6.80	5.30
ROE (%)	3.80	16.20	21.50	21.60
ROCE (%)	4.00	22.40	30.40	30.30

I would buy TV TODAY NETWORKS LTD for Medium to Long term for target of Rs. 300.00 and for the shorter term the target would be Rs. 260.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 209.50 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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