Rakesh Jhunjhunwala’s New Stock Pick: TV18 Broadcast

Rakesh Jhunjhunwala explained TV18 Broadcast’s merits as a stock in his crisp and clear manner:

“Getting news channels now will be extremely difficult. It is a high fixed cost business. So if revenues go up, profitability goes up disproportionately. Thirdly, this whole game of carriage and digitization will change the entire picture for the industry.

 

After all TV18 is the leader in news and Colors, so the amalgamation of the entertainment channels will make it the second or the third largest media play in TV in India”.

This is Rakesh Jhunjhunwala’s second tryst with the media sector. His first was Mid-Day Publications which did not end very well.

TV18 Broadcast’s financials are not in a good shape. In quarter ended September 2012, TV18 Broadcast’s reported revenues of Rs 350 crores, which was up 22% on a YOY basis while the EBITDA was Rs 18.29 crores, down about 29% on a YOY basis. It incurred losses of Rs 41.7 crores due to higher interest cost. The advertising revenues was flat on a YOY basis though there was an uptick on a QoQ basis.

What must have attracted Rakesh Jhunjhunwala to invest in TV18 Broadcast is probably the following:

(i) Liberalized foreign investment (FDI) norms for the broadcasting sector pursuant to which the foreign investment limit has been raised from 49% to 74% in teleports (setting up up-linking HUBs/teleports), Direct to Home (DTH), Cable Networks (Multi-System-Operators operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability). Foreign investment up to 74% in mobile TV is also permissible;

(ii) Digitization of cable TV will benefit the broadcasters by boosting subscription revenues;

(iii) TV18 collected Rs. 2,700 crores by way of the rights issue. This will assist the ETV acquisition and reduce debt. Hopefully, TV18 will have better business strength now;

(iv) Phase -1 of DAS rollout has been kicked off, as of Nov 1. The move will catch momentum as time passes.

(v) Reasonable valuations: A market cap of Rs. 5000+ crores for a dominant player is not that exorbitant.

Interestingly, while Raghav Behl, of the “Promoter” group held only 1,36,000 shares, Rajdeep Sardesai, of the “Public” group held 54,20,562 shares worth a mammoth Rs. 16.26 crores at the CMP of Rs. 30.