Buy IBN18 - Elara Capital

• Rating : Buy
• Target Price : INR121
• Upside : 21%
• CMP : INR100 (as on 13 July 2010)

New sun in broadcasting

IBN18 launches bouquet through Sun18

In a major game changing move, IBN18 announced an alliance with Sun TV Networks in the distribution space. The company would launch a bouquet of 33 powerful channels, containing nine channels of IBN18 and 24 channels of Sun TV through Sun18. We are greatly surprised (and positively too) to see the termination of the domestic distribution deal with MSM Discovery which had capped the huge subscription revenue potential for IBN18 channels till now. In a rapidly growing and digitizing Indian video market, this move marks an inflexion point in the subscription revenue growth for IBN18.

Restructuring unlocks subscription revenue potential

Network18, through a recent restructuring exercise, has moved all TV channels of the group into IBN18, thus giving a firm shape to the IBN18 bouquet of channels. Before that, IBN18's channels were distributed separately through MSM Discovery and Star:DEN, which capped the subscription earning capacity of these channels despite favorable ratings. In our opinion, this restructuring and distribution alliance would finally cure the huge deficiency in subscription revenues of the company, setting the stage for a 33% CAGR during FY10-FY12E.

Financials set for a complete turnaround

We believe that the worst is behind as the company as it comes out of the investment mode and starts reaping benefits of a strong turnaround in Viacom18 and business news channels. We see Viacom18 posting a PAT of INR3bn for FY12E whereas the business news operations would earn INR505mn in PAT for FY12E as most of the subscription revenues would flow directly into the bottom-line. We expect IBN18's consolidated revenues to exhibit a CAGR of 50% during FY10-FY12E, driven mainly by a step up in subscription revenues in FY12E. Further, a strong earning push from Viacom18 is expected to help the company reach INR1.9bn in net profits from a loss of INR1bn in FY10.

Valuation - Reiterate 'Buy'

Through the recent corporate restructuring as well as the distribution alliance with Sun TV Networks, IBN18 has got transformed into a very strong broadcaster in the Indian media space. It is now comparable with leading broadcasters such as Zee Entertainment and Sun TV Networks on the operational front. However, on the valuation front, the strength is not visible yet as IBN18 is available at P/E of 18x FY12E EPS whereas Zee Entertainment and Sun TV Networks trade at P/E of 21x on FY12E basis. We believe that the continued rise in subscription revenues for the company would plug the gap going forward. We reiterate our 'Buy' rating on the stock, with a target price of INR121.

Source : Equity Bulls

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