TV18 Broadcast - Digitization boost - Prabhudas Lilladher

We met up with the senior management of TV18. Following are the key takeaways:

- Digitization to boost subscription revenues: Despite boasting of a strong portfolio of channels and healthy viewership share, TV18 lags behind its closest competitor, Zee Entertainment, by a wide margin when it comes to generating subscription income. However, we expect this gap to gradually narrow down as digitization gathers steam.

- Net distribution income (NDI) set to surge: Net distribution income (subscription generated less carriage fee paid) has improved from Rs157m in FY13 to Rs1.2bn in 9MFY14 helped by digitization as well as the formation of Indiacast. TV18 hopes to end the year FY14 with NDI of Rs1.4-1.5bn. Management highlighted that they are in the process of renegotiating contracts with distributors which would enable them to grow NDI by ~50% CAGR over the next two years.

- ETV turnaround on track; losses to reduce significantly in FY15E: Post TV18's acquisition of ETV, there has been a concerted effort by the company to strengthen its content and drive improvement in viewership share. Q3 witnessed a sharp reduction in losses in its non-Telugu GECs (Q3 losses shrunk to Rs60m was Rs355m in Q2FY14). YTD losses currently stand at Rs840m and we expect FY14 losses at ~Rs1bn. Management expects losses in non-Telugu GECs to reduce by more than 50% in FY15E.

- Valuation: We expect TV18 to be a major beneficiary of the ongoing digitization. Earnings are set to improve, driven by a surge in NDI, reduction in losses at ETV, pick-up in ad spends etc. On a proforma basis, TV18 is trading at 17xFY15E consensus EBITDA.

Source : Equity Bulls

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