TV18 Broadcast - Set for solid earnings leap; initiate with a Buy - Anand Rathi

TV18 Broadcast (TV 18) is a leading TV network with strong brands in key genres. With its balance-sheet issues addressed and major network expansion behind, we expect investor focus to shift to its operational strengths and opportunities from cable-TV digitisation. We initiate coverage on TV18 with a Buy and Mar'14e target of Rs.42.

- Offers strong bouquet of channels. TV18 is a dominant player in the business news segment (with a 70% ad-revenue market share), and one of the top two in English news and Hindi GEC market. In all, it operates 12 channels and is set to acquire equity stakes in 12 channels of the ETV network. Management focus ahead would be on consolidating operations and raising profitability.

- Set to unlock full revenue potential. We expect TV18's EBITDA margin to expand ~1250bps over FY13-15, as digitisation of cable TV aids in lower carriage fee payouts and growth in subscription income. Recovery in advertising growth from FY14 would help margins as well.

- Investor focus to shift meaningfully. After the recent rights issue, we expect TV18's net debt to be Rs.3.8bn (post-ETV investments), which implies a comfortable financial position - net debt-to-EV of 6.5% (vs. 49% pre-issue). With limited expansion activity expected ahead, the balance sheet would stay healthy. This would shift investor focus to the company's operational strengths and opportunities in the space.

Valuations. TV18 trades at 18.7x FY14e proforma EBITDA (incl. pro-rata share of ETV), which is at premium to Zee Ent. (17.2x) and Sun TV (12.4x). We believe this premium is justified by TV18's solid growth profile (60% EBITDA CAGR over FY13-15). Our target price is based on 15x FY15e EBITDA. Risks. Delay in cable TV digitisation, intensifying competition.

Source : Equity Bulls

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