See operating profits by 2009 end: Network 18

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See operating profits by 2009 end: Network 18

Raghav Bahl, Editor of Network 18 said the company was almost at break-even point already and should report operating profits by the end of the calendar year 2009 and added that the network would see break even on operating levels should be achieved by the end FY10.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Network 18 Q1 cons net loss at Rs 36.3 cr ALSO READ See latest News about Network 18 See previous management interviews See what other Experts & Brokerages are saying about Network 18 Network 18 BSE | NSE 31/05/12 Are Mutual Funds betting on Network 18?

Q: We talked in the past about plans that there are to scale down the net debt for the company but just to understand it better - any target you have set out, by the end of FY10, where would you expect to see net debt at?

A: We have got Rs 3 crore loan liability which we will certainly extinguish. The other loan liabilities are really much longer-term and it doesn't make sense from a shareholder perspective to extinguish an eight-year loan which can be used much more profitably to leverage shareholder returns. So I think we will knock off the Rs 300 crore of short-term loans that is going to be coming due which as I said will straight away save nearly Rs 45 crore of interest costs on a per annum basis. We will keep the long-term loans because we believe that's good for generating shareholder returns and once revenues have come back to normal at the business news channels, it is simple arithmetic to say that the balance sheet would be back on strength. Also, the fact that Web18 is also getting out of its investment phase, the fact that Newswire18 is out of its investment phase, the fact that Infomedia has been cleaned up and is out of investment phase is in fact going to be hopefully PAT positive very soon. Once you put all these things together I think the roadmap is clear but I mean these are words - we have got to get them done.

Q: Just to come to Network18 for a second - the perennial problem for investors has been how to value Network18. While they can value IBN and they can value TV18, some of your other properties have consistently struggled to give appropriate valuations to, which is why they can't arrive at a valuation for assets and then give a holding company discount, which is typically how holding companies are valued in this country. Can you give us some sense of what different properties are valued at in your eyes including likes of Indian Film Company or even Homeshop18?

A: Since you have asked for my eyes, do let me qualify that this is going to be obviously biased since it is my eyes. Let us look at the Indian Film Company. The Indian Film Company's performance is as good as any in the country and I would wager that you can benchmark it to players like UTV and Eros in the film business. So clearly UTV's film business is valued by the market and there should be a valuation ascribed to the Indian Film Company. The problem there is that we have a small stake and our stake therefore is not getting consolidated at any level and therefore that's disappearing into a black hole. It is a problem that we would like to address. But once and hopefully that value gets known to shareholders, I am sure that will get valued, but as I said, if you look at the audited results of the company as of March 31, they've done Rs 300 crore of topline and they have done Rs 31 crore of PAT, which speaks for itself. I would wager that was the only film company which was profitable last year in India but is getting zero valuation.       

Homeshop18 has come from zero to gross sales of Rs 200 crore in the last one-year. We did a private placement in that company last round which has had a benchmark valuation, since it is a structured deal you can't say it is definite valuation, but it is benchmark valuation of a USD 125 million plus. So that is about Rs 600-650 crore. Both these values are not being captured by shareholders at all. In this country holding companies do suffer a peculiar decline or a discount, I don't know as and when that will get corrected but value has a way of showing up. Just as you cannot keep a good man down, you cannot keep values down for long. Shareholders will see it. If you just see our results yesterday - Homeshop18 has gone up from a commission income of Rs 2.4 crore to Rs 9 crore - that's commission income. Remember, that's about 20% of the gross sales. Therefore, the company had done sales of Rs 40 crore in this quarter for it to give a commission income of Rs 9 crore. One cannot miss these values. It is the first home shop company, Homeshop all over the world is an extremely valuable media property. So sooner than later this value will get seen.

Do also remember that Network18 has grown nearly 100% year-on-year (YoY) revenue growth in this environment. The number that you have got is Rs 220 crore topline which has gone up from Rs 136 crore. But at Rs 220 crore is an understatement because that still consolidates only 33% of Viacom18. It should technically from this quarter onwards start consolidating 50% because 17% couldn't be consolidated pure technicality but you have to consolidate it because it is owned by Network 18. That is another Rs 20-25 crore coming straight into the topline. So Network18 is already a Rs 250 crore company which has grown from Rs 130 crore base last year and they still does not consolidate even a penny on the film company. So it is approaching Zee TV size but has a much more diversified revenue base and in valuation terms it is less than a 10th of Zee TV. So as I said, the market will recognize these valuations. These things sometimes take time but you cannot keep good man down for long and the markets will see that.

Q: Over the next one year though, are there any capex plans that you have laid out routed either through TV18 or Network18?

A: We are very clear that all our business segments are growing robustly. So we would like to focus on existing businesses right now and get them to profitability. Our target is to get every business in the group cash positive by the end of this year or Q1 next year and that is the thing we are focused on. We don't have any capex plans outside of keeping these businesses chugging along and getting them the cash profitability, all of them. Each and every business segment in the group will be cash positive hopefully by the end of this year or early next year. That is our focus.

This is going to be a dull and boring phase to Network18, we won't be doing headline grabbing things. We will actually be sitting down and getting these businesses to profitability. So it is like one-day cricket match, we are entering the twentieth over with two wickets down and from twentieth to the fortieth over, we will now build an innings. So we will be pretty boring for the whole year.

Q: So no stadium hit with the print foray just yet?

A: That is a stated intent with our shareholders that we would. That is the only missing piece that we believe we should have. We would like to make that investment but we would like to make that investment properly with a good partner, with a pedigreed brand. So, all those things take a bit of time. If everything can come together, we would like to make that investment. But as I said that investment will be calibrated. As of now that is the only capex plan that we have, there is nothing else until we can get all business segments to cash positive and if you look at the lines, the lines are moving fine. We should be cash positive in all businesses by the end of this year.