Focus on monetising non-core assets: Network18

Network18 Media and Investments swung to profit in the first quarter of FY14 and will now focus on profitability and monetising non-core assets going ahead.

“It is now only about consolidation and milking our assets. A lot of our moves, be it the sale of non-core assets or the focus on distribution by the formation of IndiaCast goes to prove that we are putting money where our mouth is," Sai Kumar, Group CEO, Network18 (TV18 Broadcast) said. Kumar further said that the company’s entertainment business continues to grow in double digits. Network18 Q1 PAT turned positive at Rs 19 crore versus Rs 90 crore loss a year earlier. TV18 Broadcast reported a profit of Rs 5.9 crore after tax for the quarter on the back of a significantly deleveraged balance sheet as compared to a loss of Rs 23.5 crore in the previous year. (Read More) "We have been reasonably successful over the last five quarters in monetising our non-core (assets) and some of our investments," adds Sarbvir Singh, Head - Investments, Network18. Below is the edited transcript of their interview. Q: There is a profit figure that you reported in Q1, after two years of losses in FY12 and FY13, though FY13 you curtailed losses. The market wants to know, in FY14, will the focus be on profitability and will you be able to deliver profits in full year FY14? Kumar: We have said this over the last five quarters that the entire direction and the focus of the management team is now going to be fully on profits and profitability. It is with that commitment that we went into last fiscal. We came out of last fiscal hitting an operating number of about Rs 110 crore. That continues to be the stated objective. There was a phase in the life of TV18 and Network18 where we were focused on expansion. It is now only about consolidation. It is now only about milking our assets. I would say that a lot of our moves, be it the sale of non-core assets or the focus on distribution by the formation of IndiaCast, goes to prove that we are putting money where our mouth is. Q: ETV Entertainment reported earnings before interest, taxes, depreciation and amortisation (EBITDA) loss of Rs 42 crore and that has even gone up further. By when are you consolidating this and what kind of programming cost is ETV Entertainment incurring? Kumar: I must say here that we are still waiting for regulatory approvals on ETV; on ETV Entertainment and ETV News. So, that acquisition is yet to fructify, so it maybe a bit premature for me to answer this question. Having said that, with little bit of visibility that we have on what the operating teams are doing there, those are extremely strong regional assets. The entertainment market is extremely robust. We are on the process of investing in programming. If you look at the last two-three months, most of the programming initiatives have yielded very, very good viewership results, many of the channels are up 30-40 percent on gross rating points (GRP) delivery. So, I cannot comment more on this, but perhaps in the next quarter or two we should be in a much better position to give you the information. Q: Even this time around the company has monetized few of its non-core assets and that is something that the company has been doing even last year. What more is planned by way of monetisation of non-core assets? Singh: We have been reasonably successful over the last five quarters in monetising our non-core and some of our investments. There are always a few things that one can do and it would not be fair to discuss names but suffice to say, we feel comfortable in saying that what we did last year, we can probably repeat this year and then we will go from there. Q: Given the sluggish environment what is the sustainable ad rate growth? This time around you have delivered about 5.5 percent, what could we expect in the coming quarter? Kumar: If you look at this quarter, yes there has been softness in advertising, but largely on the news side. I would think that if you dissect results and it is important to dissect it because we are a very blended bouquet, we have an equal footprint in entertainment as much as we have in news. So it is important to do that dissection. Entertainment continues to go strong, entertainment continues in double digit. There is also another element which is international advertising revenues, which come in through IndiaCast and Viacom18, which is again showing extremely smart growth. It is on the news side that we are seeing some amount of softness. We believe that for a network like us that can get more than addressed by cost measures, by looking at structures. The environment is changing, it is throwing up a lot of opportunities. We believe that for a company like TV18, we have equally strong broadcast and digital assets on the news side. We are looking at common newsrooms. To illustrate something that you guys may relate to: we have a CNBC-TV18, CNBC-Awaaz and moneycontrol.com, making a common newsroom here not only will address cost but also makes you much more nimble, much more digital ready, ready for digital monetisation. So, I see tremendous opportunity on the news front. If you look at this quarter, therefore I would say hits and misses. Hits have surpassed the misses and therefore you have seen a growth in EBITDA as well as profit after tax (PAT). Disclaimer: Moneycontrol.com is part of the Network18 Group _PAGEBREAK_ Q: You said double digit for entertainment. Kumar: That is right. Q: I will just give you a reference, Zee came out with 19 percent ad revenue growth. Were you surprised and by double-digit, would you be closer to Zee, would you be in early double digits, if you could elaborate on that? Kumar: Zee is a strong player and it’s always good to have a strong player as a competitor. So, I will restrict my view to that. When it comes to us, if I look at domestic and international revenues put together, for a channel like Colors then we are close to 20 percent. I do not know what Zee’s numbers are, but if you look at only domestic, we would be close to them. Q: The second point that I wanted to understand both for business news and general news, the revenues are almost similar, Rs 55-57 crore. Business news has reported profit of Rs 17 crore, general news is at a loss of Rs 1.5 crore. The environment is sluggish for both business news and general news. So, where is this dichotomy? Is it more cost structure? Is that something that you are looking at in terms of general news? Is there a bit of profitability focus going forward? Kumar: Absolutely. You have got that very right. If you look at business news, the input costs for business news are far lower than the input cost for general news. So, the margins that you see even in a weak environment in business news is as much about leadership of the brand and also to the fact that the input costs are much lower than that in general news. The third point is that general news are much more heavily contested category. The number of competing peers have gone up over the last few years in Hindi as well as English news. But I believe that with our presence through the IBN Network, we have enough leverage when it comes to costs, leadership and non commercial time revenues for us to correct this trend. So, we look at it as a weak beginning for news but we are still very positive. Q: What is the balance sheet now look like because the company has made various and multiple efforts over a long time to deleverage the balance sheet? Where does it currently stand at and what will be the cash generation per quarter? Singh: The balance sheet after the rights issue last year and we reported our numbers as of March 31 where you saw the net debt was Rs 250 crore for Network18. That is a huge reduction from almost more than Rs 1,200 crore that it was last year. This quarter the businesses took in a little bit of cash given the seasonality-- Q4 is a big quarter. So, seasonality resulted in some cash usage, but we made up by selling some assets as well as through some other income. The balance sheet is in very good shape. We are committed to our stakeholders that we will keep the balance sheet in check and throw off cash as we go through the year. Q: When does the digital as well as the allied business turn profitable? Kumar: Very soon. If you were to break it up you would see that on the e-commerce side, we would be stemming down our losses considerably over the next few quarters and that is the stated aim of the management team. On the content side, we are actually seeing the advertising rupee moving from print to digital. This quarter our digital content businesses have grown by about 30 percent compared to 10-12 percent ad growth on broadcast. So, that's the faster growth rate medium. I would be very bullish about digital content getting into positive territory sooner than later. It’s not been evasive; I just do not want to give an exact timeline. Q: Do you want to come in on the digital business? Singh: Yes, if you see our e-commerce businesses, we had reduced our losses significantly into Q4. In Q1, unfortunately, there was a bit of a slip. The competitive intensities in these areas are very high. But we have restructured our businesses somewhat and you will see Q2 onwards, a very sharp reduction in operating losses. Hopefully, as we go through the year, we will reach the point which you suggested where we would breakeven or better. So, we are definitely on a path towards that. It is just that the Q1 probably didn't show the work that is going on at this point. Q: In the beginning of the quarter there was an issue with Hathway and IndiaCast. Has that been resolved and also a larger question in terms of carriage fees because as I read from the press release, the net distribution income maybe understood as subscription revenue minus the carriage fees. They both are Rs 35 crore, the net income and the subscription fees. So, are you not paying any carriage fees? Could you explain on that? Kumar: The Rs 34 crore odd that you see there, is our subscription income minus the carriage fee that we are paying. If you see the swing, we have moved from minus 16 to plus 34. We have seen a year-on-year swing upwards of 50 percent and a quarter-on-quarter swing of about 30 percent. So, suffice to say that carriage fees are headed downwards anywhere between 30-40 percent and subscription is up on a similar number. When IndiaCast was formed, we looked at IndiaCast and we gave them a mandate of moving internationally. They have expanded a global footprint because we transact in dollars and pounds in the UK and the US markets which are considerable markets. We also see a currency upside this year. On the domestic front, we have met all our targets. If things go right, we may punch higher than our targets as well. As far as the specific of Hathway goes, yes, there was a standoff of sorts. But we have come out strong and we are happy. Q: So this combination of low carriage fees and higher subscription revenues going forward would mean good profitability in FY14. Is there any number that you can give us? Kumar: Good profitability is what it should be.