Assured. View - BUY CMP : Rs. 61 Target Price: Rs. 91 (In months) INVESTMENT HIGHLIGHTS. 20 th April 2015 NETWORK 18 MEDIA & INVESTMENTS LIMITED

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1 20 th April 2015 NETWORK 18 MEDIA & INVESTMENTS LIMITED BSE: Sector: MEDIA View - BUY CMP : Rs. 61 Target Price: Rs. 91 (In months) BUSINESS BACKGROUND Network 18 Media & Investments Limited (NW18) is a media and entertainment company in India, with interests in television, internet, filmed entertainment, digital commerce, magazines, mobile content and allied businesses. Through its 100% subsidiary TV18 Broadcast Ltd it occupies a prominent space in the broadcasting arena with a bouquet of leading news networks comprising channels such as CNBC-TV18, CNBC Awaaz, CNBC-TV18 Prime HD, CNN-IBN, IBN7 and IBN- Lokmat.TV18 also operates a joint venture with Viacom, called Viacom18, which houses a portfolio of popular entertainment channels Colors, Colors HD, Rishtey, MTV, MTV Indies, SONIC, Comedy Central, VH1, Nick, Nick Jr. and Nick Teen - and Viacom18 Motion Pictures, the group s film entertainment business. NW18 also operates its digital, publishing and digital commerce assets including moneycontrol. com, ibnlive.com, in.com, burrp.com, News18.com and firstpost.com, HomeShop18 and bookmyshow.com and publishes Forbes India. INVESTMENT HIGHLIGHTS KEY FACE DATA VALUE Rs 5.00 DIVD YIELD % NA 52 WK HI/LOW 71/33 NSE CODE NETWORK18 BSE CODE NETWORK18 MARKET CAP RS 6469 CRS Strong Q4 FY15 Performance NW18 reported strong steady numbers of Rs 841 crs in Q4 FY15 up by 14% YoY with EBIDTA growth of 95% at Rs 70 crs from Rs 40 crs in Q4 last year. The PBT for Q4FY15 stood at Rs 50 crs as compared to Rs 5 crs in Q4 last year. For FY15 NW18 has recorded a topline of Rs crs, a EBIDTA of Rs 153 crs while net loss is placed at Rs 1090 crs. Before exceptional one items of Rs 1064 crs the PBT stood at Rs crs as compared to a net loss of Rs 69 crs last year. NW18 is well-positioned in a digitized environment & enjoys leadership in broadcast, digital content & commerce vscore: vscore (Value Score) is our proprietary company rating system f NW18 is one of the leading players in news and entertainment broadcasting, digital content and digital commerce business segments and enjoys a integrated portfolio that attracts a wide spectrum of economic sections and demographic groups in India. On the broadcasting side it operates operating news television channels: CNBC-TV18, CNN-IBN, IBN7, CNBC Awaaz, IBNLokmat, and CNBC-TV18 Prime HD. On the entertainment television channels it has offerings like Colors, Colors HD, Rishtey, MTV India, MTV Indies, Vh1, Nick, Nick Jr., Sonic, Comedy Central and HistoryTV18. On the regional news & entertainment channels it product offerings include ETV Marathi, ETV Gujarati, ETV Bangla, ETV Oriya, ETV Kannada in entertainment genre & ETV UP, ETV MP, ETV Rajasthan, ETV Bihar, ETV Urdu, ETV Kannada, ETV Bangla and ETV Haryana in news genre. Assured NW18 also operates market-leading digital content and commerce assets, including moneycontrol.com, ibnlive.com, firstpost.com,in.com, burrp.com, News18.com, homeshop18.com and bookmyshow.com. SHAREHOLDING PATTERN PROMOTERS - 78% BANKS, MFs & DIIs - 1% FIIs - 1% PUBLIC - 20% KEY FUNDAMENTALS YE FY15 FY16 FY17 Sales Gr% PBT Gr% PAT Gr% 27 EPS Gr% 27 Roe % 9 11 Precise Roce % EPS (Rs) Cash P/E(x) Advice

2 Improving volume outlook supports a strong 2H outlook Strong portfolio of market-leading brands NW18 via its subsidiaries have well established brands across all the key segments which include television, digital and print publishing, digital commerce. Its business news channels (CNBC TV18 & CNBC Awaaz) enjoy market leadership position while its general news channels (CNN IBN & IBN 7) are not only one of the leading channels in the genre but have created their strong brand & identity. NW18 s Entertainment genre also provides strong evidence of its popularity with Colors being one of the top Hindi GEC s in the market and MTV being one of the leading youth brands in the country. Nick, its flagship entertainment television channel in the kids category has reached out to more than 13.5 million kids week on week while History TV18 continues to engage with the viewers with the highest time spent in the genre, a lead maintained since its launch. NW18 is the parent holding company for all its group companies which NW18 is the flagship holding company which is now controlled by Reliance Industries Limited Mukesh Ambani Group and it holds sizeable strategic stakes in digital companies like Book My Show, Home Shop 18. Bookmyshow.com, operated by Bigtree Entertainment Private Limited, in which NW18 aquired an interest in 2007, provides online booking for movies, plays, sporting events and shows across India. BookMyShow delivers confirmation of ticket purchases via or SMS. Customers may pick up their tickets prior to the event at a cinema kiosk or, in select cities, print their tickets from home. Besides movie ticketing, which still makes up for almost 70% of the company's revenues, Bookmyshow has been able to shore up sales with its exclusive ticketing partnerships with 6 out of the 8 Indian Premier League teams. Global private equity fund SAIF Partners & Accel Partners are PE investors in Bookmyshow and have currently valued this internet property at around Rs 1000 crs. Homeshop18: Homeshop18 is a 24-hour home shopping service. Through Homeshop18, it facilitates the sale of various consumer products, including home appliances, books, music, movies, cameras, mobile phones, jewelry and watches, through a variety of interactive electronic media, such as television, dedicated call centers and the Internet. Last October it raised $14 million (Rs 87 crs) follow-on funding round with existing investors GS Home Shopping, funds managed by OCP Asia and Network18. This transaction valued HomeShop18 at $360 million (Rs 2,230 crs). This came six months after the firm raised fresh capital of $30 million (Rs 163 crs back then) from OCP Asia and Network18. This transaction valued HomeShop18 at $330 million (Rs 1,790 crs). Digitization to provide a strong boost to NW18 Broadcasting Subscription Revenues Earlier the non-existence of a proper addressable system had resulted in significant under reporting (85% of the Rs cr market size) of the subscribers base by LCO s (Local Cable Operator) in turn leading to lower revenue realizations for the MSO s and broadcasters. This revenue leakage has not only impacted broadcasters and MSOs but also the Government. The new system of DAS (Digital Addressable System), which is currently being deployed will drastically change the fortunes of the industry ensuring that all negatives regarding reporting of subscribers is done away with. With DAS gradually replacing the analog distribution system, the entire universe of subscribers will now be uniquely recognized leading to a multifold jump in the subscribers. Further, going ahead a sharp decline in carriage costs going forward and curtailed losses on the sports business should help NW18 broadcasting business improve and enhance its margins and put the company in a sweet spot and strengthen its competitive positioning vis a vis other competitors. Currently subscription revenues form only 30% of broadcasters revenue while 70% comprises of advertising revenues. With digitization this ratio will change to 50-50%. FMCG sector forms 40% of advertisement volume. Also advertising rates have been flat and so a rate increase will add as a trigger

3 Reliance Jio rollout will use the content strength of NW18 s digital and broadcasting platforms optimally In addition to telecom services Reliance Jio is looking to offer television channels on its fourth generation (4G) broadband network. As part of the entertainment bouquet, the company is planning live TV and Video-on-Demand, with HD viewing experience. It also includes Catch-up TV, which eliminates the need for recording programmes. The Catch-up TV comes with seven days of stored content for each channel complements the viewing experience and eliminates the need to remember to record your favourite show. Reliance Jio is expected to launch telecom services by July Aug 2015 and when that happens, subscribers to Reliance Jio's fourth-generation services may have to only pay for their data connection while accessing the TV content free, giving it a pricing edge over rivals whose subscribers would need pay for similar content, Network18's news channels CNBC-TV18, CNN-IBN and IBN 7 and entertainment channel Colors are the key properties that users are likely to get a free access to as long as they have a Reliance Jio data connection. Network18 has well-penetrated channels that have immediate-on the-move consumption, especially in metro cities and rural areas, indicating that metros where people spend a lot of time traveling, and in rural areas where media penetration is low, Reliance Jio sees a ready set of consumers for the 4G TV offering. Reliance Jio also plans to exploit synergies between Homeshop18, Network18's online and retail venture, and the mobile platform to extend the service on mobile phones.hence Reliance Jio, despite being a new kid on the block, might have a head start because of the content it now owns. With Network18 in its kitty, Reliance Jio could see intra-industry convergence between platforms telecom, media and technology and also inter-industry convergence. Retail and the Web are converging in a big way, and the combination of the various platforms could provide the group with an end to-end gamut of consumer services. In short the synergy between Network18 and Reliance s 4G play in the telecom business through Reliance Jio is for real as it would need a content factory of enormous scale. Financial performance - topline growth and margin expansion We estimate NW18 s earnings to witness a CAGR of 20-25% plus over FY15-17E. This will be driven by strong revenue growth (12.-15% CAGR over FY15-17E) and a steady EBITDA margin expansion over the same period. Over the years, the company has seen its operating margins having remained low in a range between 3 to 4% since last 3 years. This is expected to change slowly over the next 2-3 years Also both ROCE and Roe have remained low due to high opex costs being around 9% and negative Roe due to losses till FY15 which is expected to improve by FY17. Also, considering that NW18 is largely a domestic player, the net leverage at 0.59:1x as on FY15 seems reasonable.

4 Business Outlook & Stock Valuation On a rough cut basis, in FY16, Topline is expected to touch Rs 3600 crs. On the bottomline level we expect the company to record a PAT of Rs 155 crs in FY16E. Thus on a conservative basis, NW18 should record a EPS of Rs 1.48 for FY16E and Rs 2.00 for FY17 respectively. More noteworthy is the investment value of its equity stakes in its group companies namely Bookmyshow and HomeShop18 which is currently worth Rs 3500 crs as compared to NW18 s market cap of Rs crs. We believe that going ahead there are strong possibilities of both these business getting listed abroad and thereby opening a possibility for value unlocking for NW18. Also NW18 s broadcasting business for both the English and Hindi News channels apart from the Regional, Entertainment and Films business should do well quite significantly over the next 2-3 years considering the quality of manpower and the brand pull of these properties. Hence with better macro numbers expected for the Indian Economy in the next 2-3 years, we expect the Advertising piece to also add to the Topline for NW18 s broadcasting business, also the internet, digital business are likely to grow at a very fast pace in the next 2-3 years. Further, going ahead a sharp decline in carriage costs going forward and curtailed losses on the sports business should help NW18 broadcasting business improve and enhance its margins and put the company in a sweet spot and strengthen its competitive positioning vis a vis other competitors. Currently subscription revenues form only 30% of broadcasters revenue while 70% comprises of advertising revenues. With digitization this ratio will change to 50-50%. However the most important driver for NW18 in the next 12 months will be the entry of Reliance Jio Telecom and the monetization of its content going ahead. Hence although net earnings may not factor in the full potential of the entire value chain of NW18 s business, the outlook over the medium to long term looks positive. Added to this the entry of Reliance Industries as its main promoter adds significant comfort which has a 78% equity stake in NW18 and 9% stake in TV 18 purchased at a cost of Rs 4000 crs. Hence we believe that the NW18 stock should be purchased at the current price for a price target of around Rs 91 keeping a financial stop loss of Rs 51. This price target is expected over the next 12 to 15 months as the core earnings now look all set to grow at a healthy pace but investors need to be patient for healthy rewards here. FINANCIALS For the Year Ended March RsCrs FY14A FY15A FY16E FY17E Net Sales EBIDTA EBIDTA % Interest Depreciation Non Operational Other Income Profit Before Tax Exceptional Items Profit After Tax Diluted EPS (Rs) Equity Capital Reserves Borrowings GrossBlock Investments

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