T.V. Today Network Ltd [September 2017]
Snapshot Price 272 Market Capital Yearly Profits [2017] 1621 crores 100 crores Price to Earnings 16.21 Total Debt [Short + Long Term] Debt Free 52 Week High/Low 360/211.00 ROE 18.30% Indicative Buying Range Below 275 1. Even though there is a general negative perception about news channels in India, this company has got a debt free balance sheet and good amount of cash on books [Around 260 crores of cash] 2. As the valuations are reasonable, we recommend to consider this company for medium term investment [1-2 years]. 3. One can allocate up to 10% of his or her portfolio in this stock. This is just an indicative purpose and everyone need to allocate based on their risk appetite and return expectations.
Products 1. The company mainly operates in two segments namely television news and radio broadcasting. The Company operates four news channels namely: Aaj Tak [This is the main contributor to the revenue] India Today Tez Dilli AajTak 2. The Company also operates three FM radio stations under brand ISHQ 104.8 FM in Delhi, Mumbai and Kolkata. 3. In addition to this, company has recently acquired 100% stake in loss making newspaper publishing business named Mail Today.
Revenue Contribution 1. Majority of the revenue is generated from the news business: Segmentwise Revenue 1% 6% Television broadcasting Radio broadcasting Newspaper publishing 93% 2. As can be seen 93% of the revenue is generated from the news channels while only 7% comes from radio and newspaper business.
Segmental Performance 1. The television broadcasting is the only profitable business with other businesses [Radio and Newspaper] being in losses. Here is the segment results showing the performance of each division: Television Broadcasting Radio Broadcasting Newspaper 157.72 Cr (17.50) Cr (2.83) Cr 2. The company tried to sell off its radio business but did not get the permission from the ministry of broadcasting. The company might try to sell off this business in the future.
Competitive Landscape Hindi News 1. Most of the group revenues come from Aaj tak Hindi news channel. Below graphic shows the market share of Aaj Tak channel: 2. There are 4 major Hindi news channels which together command 50% viewership and the remaining 8 news channels command another 50% market share. 3. Aaj tak commands 16.8% market share in Hindi news. Aaj tak is a leader in Hindi news segment.
Competitive Landscape English News 1. India Today is the English news channel which was earlier known as Headlines Today. The channel grew its market share to 22.7% during last quarter of FY 2017 from 16.9% during first quarter of FY 2017. 2. In the prime time [Time ranging from 19:00 to 24:00], the channel was number 2 throughout FY 2017. 3. With the recent launch of Republic news channel, the competitive intensity has increased further in the English news space and this had pushed the channel to number 3 position during the current financial year.
Competitive Advantage 1. The company has news brands like Aaj Tak and India Today which carry some branding power. Although news is a commodity business, the presence of even minor branding helps in retaining the viewers. 2. Aaj Tak has maintained its leadership in Hindi news space for over 15 years now. 3. Every week BARC publishes the data about the viewership in both rural and urban markets. The ratings show that Aaj Tak is a clear leader week after week. 4. The financial health of most of the news broadcasters is not good but this company has got good financial health due to higher advertising prices. In case of any consolidation in the Industry then the viewership share will further improve. 5. Globally News broadcasting leaders are fantastic franchisees and they have been able to return healthy returns on capital sustainably for a long periods. They have expanding Moats and dislodging incumbents in this sector has always been a tough job. You have clear market leaders in each region and the Top-2 brands are extremely profitable and healthy.
Scalability 1. The Indian television industry is expected to reach a size of 116,600 crores by 2021. 2. TV households are expected to further increase from 18.1 crores in 2016 to 20.3 crores in 2021. 3. The television advertising revenue is set to increase from 22,500 crores in 2017 to 39,400 crores in 2021. This is a growth rate of almost 14% CAGR. 4. The content produced by the company can be monetized over online as the consumption of videos is going up with the increased penetration of internet. 5. As the consumerization of Indian society evolves, dominant media platforms will become more valuable. There will be several drivers to this trend such as increase in Organized Vs Unorganized trade, National Brands, More competition etc. 6. Advertising spending in India is one of the lowest in the world. Even compared with other developing markets such as China, Indonesia, etc. - India has a 6X growth opportunity in terms of increase in advertising spending.
Numbers - Sales, Profits, OPM 1. The sales have consistently increased over the past 10 years at the rate of 11.7% CAGR. 2. Profits too increased at the rate of 12.5% over this period. 3. From FY 2009 to 2013, the operating margins was very low due to general economic slowdown. The operating margins during normal years is above 25%. 4. The tax rate is above 30%.
Numbers - Dividend The dividend payout ratio is at 12% for most of the years when the business has done well. This is very conservative dividend payout. This can be due to the fact that management wants to conserve the cash for new initiatives [like new channel launches].
Numbers Balance Sheet 1. The company has 260 crores in cash. 2. The balance sheet is absolutely clean with almost NIL debt. 3. The management has not diluted the equity right from the time of IPO.
Management Salary The owners take home salary is 11.7 crores which is more than 10% of the net profits. This is on the higher side but we feel that this can be ignored.
Management Promoter Holding The promoter holding is at 57% which is good enough. Promoter Holding 10% Indian Promoters 19% Mutual Funds Bodies Corporate 5% 8% 58% Indian Public NRI, Trust and Foreign Investor
Valuations 1. The company currently trades at a market capitalization of 1621 crores. 2. The total profit earned during FY 2017 is 100 crores which gives the price to earnings multiple [P/E] of 16.21. We arrived at the P/E by dividing the market capitalization by the net profit for whole year. 3. The enterprise value of the stock is 1361 crores [Market capitalization Cash] which is decent valuation for a company with net profits of 100 crores.
Risks & Concerns 1. There is a lot of competition in the news broadcasting business as most of the news broadcasters continue to be in the business for political reasons rather than for the profits. 2. The proliferation of social media has an impact on the television viewership. 3. Now-a-days news is being consumed over the online sources and this can impact the viewership of television news broadcasters.
Check List Competitive Advantage Scalability Numbers - Sales, Profits, OPM Dividend Numbers - Balance Sheet Management Salary Management Promoter Holding Valuations x x The company gets tick mark on all parameters except the dividend & management salary.