Buy TV18, target Rs 967: Sharekhan

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Sharekhan is bullish on TV18 and has maintained buy rating on the stock with target price of Rs  967.

 

Sharekhan Stock Broking firm research report on TV18

 

TV18 India (TV 18) reported a top line growth of 50.1% for Q1FY2008 with revenues of Rs68.1 crore on the back of a strong growth in both news and Internet segments.

 

The operating profit margin (OPM) dropped to 15.2% as against 31.3% in Q1FY2007 as web18 and Newswire 18 are in high investment phase. 

 

The adjusted net profit (pre-ESOP amortisation and extraordinary items) stood at Rs0.6crore primarily on account of lower consolidated margins.

 

Web18 expanded its portfolio of offerings through the launch of bookmyshow.com and buzz.com. We expect Web18 to get listed by Q1FY2009. w After raising Rs200 crore through qualified institutional placement (QIP), TV18 board has approved a preferential allotment of 50 lakh warrants at Rs796 per share to the holding company Network18. This will increase holding of the parent company from 49.18% to 53.3%. We believe these funds will be utilised for the organic and inorganic growth plans in media and allied space.

 

TV18 has acquired a 35% stake in Mobile NXT a Bangalore based mobile retail chain. Mobile NXT has 25 retail outlets and has plans to open 150 stores by March 2008.

 

We have revised our estimates for FY2008 and FY2009 to factor in the higher revenue growth and the increased spend on account of ramping up new businesses that are in investment phase. w We maintain a price target of Rs967 for the stock derived from our sum-of-theparts methodology of valuation of stock.

 

Q1FY2008 performance

 

Strong momentum in revenue growth continues TV18 continues to witness a strong growth in its revenues. For the quarter, the overall revenue grew by 50.1% year on year (yoy) to Rs68.1 crore. The core news business registered a 44% year-on-year (y-o-y) increase to Rs57.9 crore reflecting the buoyant scenario for its niche channels Awaaz and CNBC.

 

Awaaz is moving ahead and is successfully establishing itself as a preferred consumer channel. A 80.6% revenue growth by Web18 is along the expected lines and we expect the growth momentum to continue going forward. TV18 reported separate profit and loss statements for its different operation segments in Q1FY2008.

 

The newly acquired business of Newswire 18 recorded a marginal contribution of Rs0.9 crore to the consolidated revenues. News business growth to remain strong TV18 owns two of the most lucrative news properties. While CNBC has strongly established itself as a premium business channel, Awaaz continues to march ahead as a preferred consumer channel. We expect TV18's news business to register a strong growth across constituents of revenue.

 

We expect that while the premium positioning of its channels will enable it to hike advertisement rates periodically and comfortably pass it on to the advertisers, the increasing addressability due to digitisation of cable and expansion of direct to home TV and IPTV will lead to a multifold growth in its pay revenues. We expect the pay revenues for TV18 to grow at a compounded annual growth rate (CAGR) of 55% over FY2007-09E.

 

The other contributor to the news revenues, the events division FOCUS has been performing exceedingly well, we expect it to register a CAGR of 45% in revenues over FY2007-09E. Web18 continues to expand We view TV 18's internet business as one of its prominent growth drivers. It has been continuously enhancing its web offerings in terms of their content and has been frequently adding new innovative web properties to its portfolio.

 

While moneycontrol.com, poweryourtrade.com, ibnlive.com and commoditiescontrol.com continue to be the major contributors to Web18's revenues we expect contribution from other properties (currently in investment phase) to increase going forward. Web18 acquired a majority stake in Bigtree Entertainment (Bigtree) the industry leader in movie and entertainment ticketing in Q4FY2007.

 

Bigtree provides backend services to cinema exhibitors. Web18 also launched bookmyshow.com a movie ticketing site expanding the business model of Bigtree. We expect Bigtree to make a significant contribution to Web18's revenues going forward. We expect the management to list Web18 on the bourses (presumably NASDAQ) by Q1FY2009 and thereby unlock value for TV18 shareholders.  

 

(Note: Web18, which owns Moneycontrol.com and Indiaearnings.com, belongs to the Network 18 Group).