Buy IBN18 for target of Rs 122 - Elara Capital

• Rating : Buy
• Target Price : INR122
• Upside : 47%
• CMP : INR83 (as on 28 May 2010)

Colorful growth

Viacom18 triples its PAT on QoQ basis

Viacom18 continued its journey towards higher profitability with the Q4FY10 EBITDA reaching INR176mn from INR90mn in Q3FY10. The company managed to increase its PAT three times to INR154mn on YoY basis despite a 17% QoQ fall in the topline due to operating costs falling 22% during the same period. In our earlier report on the company, we had highlighted that Viacom18 would be on a sustained profitability path due to multiple reasons, helping it benefit from the high operating leverage.

Consolidated operations post EBITDA of INR24mn

Helped by a higher profitability in Viacom18 and lower losses in IBN-Lokmat, IBN18 continued to remain in profit zone for second quarter of FY10, with INR24mn in consolidated EBITDA. However, the company sustained losses at the PAT level due to losses in news operations and higher interest costs. For the year FY10, the company reduced its EBITDA loss to INR328mn from INR569mn in FY09, as the profitability at Viacom18 started getting consolidated in FY10.

Valuation

We consider that the disbelief regarding a strong earnings push from Viacom18 is overdone, and the company is all set to report a continued progress on the profitability front going forward, as better subscription income-led operating leverage starts unfolding at Viacom18 level. IBN18 stock had declined sharply during the recent downturn in the stock market on low volumes and investor disinterest, and is trading at below its right issue price of INR93.5. We believe that the CMP of INR83 provides a good entry level to play on an excellent turnaround currently underway in the company. We reiterate our Buy recommendation on the stock with a SOTP based target price of INR122, indicating an upside of 47% from current levels.

Source : Equity Bulls

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