Imagine you are standing in the crowd. Radhakishan Damani, the legendary investor with several multi-baggers to his credit, catches your eye and beckons you to come closer. He puts his arm around your shoulder and whispers in your ear that a stock has great prospects and that you should buy it for your portfolio. Would you turn your face and ignore him?
Radhakishan Damani would never do any of the above to you or to anyone else. However, his action of buying a truckload of the stock in the glare of the public eye is no less than his whispering in our ear to buy the stock.
I am referring to TV Today Network, to which Radhakishan Damani and Ramesh Damani have recently entrusted a huge part of their wealth.
Now, if you are a puritanical investor, you will sneer at the suggestion that one should buy a stock only because a legendary investor has bought it. You will demand facts and figures on how and why the stock is a good buy.
Fortunately, now, even the facts and figures are available and they corroborate why Radhakishan Damani and Ramesh Damani are so bullish about TV Today Network and have bought truckloads of the stock.
You will recollect that in my earlier piece, I had referred to Ramesh Damani calling digitization a “game-changer” for the entire industry.
That “game-changer” theory is formulated into specific numbers in a research report penned by Karan Mittal & Sneha Agarwal of ICICI-Direct. The report explains that digitisation will bring TV Today Network the twin benefits of declining carriage cost and uptick in subscription revenue. The carriage cost, which forms about 30-35% of the revenue is expected to decline at an annual rate of 10% over the next two years. As the other costs are largely fixed in nature, TV Today will enjoy a high degree of operating leverage, resulting in 35.1% EBITDA CAGR (FY14-16E) to Rs. 199.4 crore. A revival in EBITDA margins means that valuation multiples are expected to inch up to historical levels.
The logic applied by Karan Mittal & Sneha Agarwal is simple and easy to understand. As to valuations, the duo point out that if you value TV Today Network at 15x FY16E EPS of Rs. 20, you will get the target price of Rs. 300, which is an upside of about 35% from the CMP of Rs. 223.
Personally, I am not inclined to second-guess accomplished investors like Radhakishan Damani and Ramesh Damani. Also, I think there is enough tangible material in the ICICI-Direct report to justify our staring a SIP in TV Today Network.