Jhunjhunwala & Damani Buy Tv18
Rakesh Jhunjhunwala, the badshah of Dalal Street needs no Introduction and was seen on dalal street buying his Mentor Radhakrishna Damani’s Favorite stock TV18 Broadcast Limited. Rakesh Jhunjhunwala now owns 3.2% of the company whereas Damani owns 2.44%.
Tv18 Broadcast Enjoys Strong Parentage of Mukesh Ambani Owned Reliance Industry. The Following blog will explain you why exactly are these 3 legends backing this company.
About the Business – TV18 Broadcast is India’s most diverse and leading Media and Entertainment conglomerates with interest in television, internet, films and entertainment.
Dont Forget to Read the Valuation Paragraph of TV18 for amazing Clarity
TV18 Owns very popular Channels like CNBC, Colors, MTV, Sonic, Etc.
The Company pays Royalty for Using CNBC brand of about 30 Crores a Year whereas it has a joint venture for Colors and other MTV with Viacom18. Tv18 entered the Regional Market by buying out ETV for 2053 Crores.
Financials –
The company has been recovering in the last few years as investment in Colors starts to yield returns. Company has focused on very high Quality Content in colors in its Popular Shows Big Boss, Nagin Jalak Diklaja etc which has made colors the number 1 GEC channel in Q3 FY2017.
Investment Rational –
Subscription Revenues Set to Surge: The 2 Primary Revenue Generator are Advertisement & Subscription. Subscription Revenues are given by DTH players, however with the onset of digitalization especially in Tier III & IV cities , subscription revenues are all set to improve.
Advertising Fees Early Signs of Picking up: : TV18 was under tremendous pressure as advertising revenue had plummeted due to the economic slowdown and 12 minute ad cap regulation. Going ahead, advertising revenue is expected to pick up as economy improves.
Grabbing Regional Channel Space : Do you know Sun TV has an operating margin of 70%? Sun Tv has been maintaining this margin level in the toughest of All times. Tv18 entered the growing regional space by acquiring 100% stake in ETV news, 50% stake in ETV GEC via Viacom JV and 24% stake in ETV Telugu spending a whopping 2052 Cr. However, the acquisition gives the TV18 a foothold into fast growing regional space. ETV acquisition has also led to better bargaining power with Multi system operators , DTH players and advertising companies and has enhanced its presence in Media & Entertainment Space. TV 18 has a significant presence in hindi speaking belt via ETV. It also has strong presence in Maharashtra, Karnataka, Rajasthan & Gujarat. Digitization and improved content to increase viewership share of regional channels from 27% in FY2012 to 43% in FY2020E
Sector Tailwinds – The size of India’s television industry was estimated at Rs 542 billion in 2015, which is expected to grow at a CAGR of 15% to touch Rs 1,098 billion in 2020.
Strengthening & Transition of Colors Brand: GEC has undergone consolidation with STAR, ZEE and Colors exchanging top 3 places in the last few years. In Q3FY17 Colors continued its strong performance and was the #1 channel among its comparable peers.Colors has gained higher market share in urban area as per BARC ratings while still increasing its presence in rural areas.
Valuation –
Lets understand the Listed Space to Understand the Valuation of TV18.
Zee Entertainment is clearly the Market Leader of the Pack with 1000 crores of profit and 47,600 Crores of Market Cap. Sun Tv a regional Player has PAT margins of 35.5% clearly having competitive advantage in South regional entertainment Market. TV18 has lagged behind in PAT due to a lot of investments in Colors to make it number 1 channel in GEC.
Typically Industry Opearting Margins are between 25-70%. TV18 has operating margin of 9.8% only but it has presence in both Regional play in ETV and GEC like colors. The margins of Tv18 have been poor because of continuous investments in new Channels. A diversified Market leader like TV18 can easily Fetch a PE multiple of 20-25x. The question that is what will be the earnings then if margins expands to 25-30%.
We conservatively expect that Operating Margins can expand to 25% in 3 years, Sales growth of 12% and PE multiple of 25. Using this approach, we believe that the company will be valued at at-least 16,000 Crores against about 6300 Today. Please note Zee Entertainment trades at 50+ PE and Colors is now better than Zee in viewership rating.
Conclusion
Tv18 is available at High margin of Safety, the bet is on the Business model rather than on the Financial. We are confident that the company will turnaround in coming years, but even if it doesn’t the odds of someone losing money is low. Media is a very high fixed cost business. The gestation period is extremely high. It will be extremely difficult for newer channels to be launched & start competing against the big guys for gaining viewership and market share. TV18 has demonstrated a successful business model over the years and across the segments; the company’s channels are among the top leaders in their particular segments. ETV channels via its subsidiary are near break-even and will start performing in coming years. Colors has become profitable but we believe margins can improve substantially in coming years. With Rakesh Jhunjhunwala and RadhaKrishna Damani Betting big in this stock, this looks to be a good pick.
Please note – From FY2017 Viacom18, Indiacast and IBN Lokmat have now been accounted following “Equity method”, as proportionate consolidation method is not allowed as per New Ind AS. We have made this report based on 2016 and prior annual report as quarterly data wasn’t sufficient.
Disclosure – Amit Jeswani and His family has no Positions in this Stock. Stallion Asset is a SEBI Registered Equity Research Analyst. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision.
