tv today networks ltd dr equity oct 2014 multibagger pick

TV Today Networks LtdBest Media Play

Retail Equity Research

Best Media Play

October 2014

TV Today Network HO

10/7/2014 2www.drequity.in

Unearthing Multibagger Stocks

Content Index

•TV Today Networks Ltd– An Introduction

•TV Today Networks Ltd– Business Overview

• Industry Overview

•Warren Buffett Filters Check

• Concerns

• Conclusion• Conclusion



Recommendation: Strong Buy

CMP: INR 210

FV: Rs 5

Market Cap: Rs 1200Cr

BSE Code: 532515

NSE Code: TVTODAY

Bloomberg Code: TVTN:IN

Sector: Media &

Entertainment

Promoter Holding: 57.5%

TV Today Networks Ltd – Investment Highlights

Promoter Holding: 57.5%

Total Equity : 29.7cr



Mr Aroon Purie began the India Today Group with an eponymous magazine in 1975. Today the

group is India's most diversified media group with 32 magazines, 7 radio stations, 4 TV

channels, 1 newspaper, multiple web and mobile portals, a leading classical music label and

book publishing arm. Through its subscribers, readers, viewers and listeners, the group reaches

out to over 50 million individuals.

Introduction

�Aaj Tak news channel is the most tuned in channel among Hindi news.

�Dominant channel in the highly competitive market.

�News content being highly popular among Indian families, stand to gain more popularity as

literacy rates and income levels rises.

�As digitisation penetrates the subscription revenues will go up significantly.

�Since, TV today caters large Hindi speaking audience, Phase 3 and Phase 4 digitisation roll out

will boost the subscription base.will boost the subscription base.

�There is a huge operating leverage in TV today since most of the cost is fixed in nature so as

the subscriber base increases it directly contributes to the bottom-line.

Aaj Tak is the No.

1 Hindi News

Channel

Strong Ad Growth to

boost bottom line

Huge

Operating

Leverage Play



�TV Today Network (TV Today) incorporated in December, 1999, is a part of the India Today

Group.

�A leading news broadcaster in India.

�It operates as a subsidiary of Living Media, the holding company of the India Today group of

publications.

�Chairman of Living Media, Aroon Purie, has a rich lineage in the news disbursement business.

�TV Today is one of the leading news broadcasters in India with four channels viz. Aaj

Tak, Headlines Today, Delhi Aaj Tak and Tez distributed by MSM Discovery.

�TV Today is the first Hindi news channel to go live also the most popular channel for Hindi

Company background

�TV Today is the first Hindi news channel to go live also the most popular channel for Hindi

news viewers.

�In addition, Radio Today Broadcasting Ltd, a fellow subsidiary, merged with the company

extending the presence of TV Today to the radio segment under the brand Oye 104.8 FM.

�The company has also made a strategic investment worth | 45 crore in FY10 in Mail Today

Newspaper Pvt Ltd, which publishes a news paper called Mail Today in a bid to enter the print

segment for business scalability.



Industry Overview

�TV Industry grown at 12% CAGR for the period FY08-FY13.

�As per FICCI KPMG data industry will grow at 16% for the next 5 years, which will take the

present market size of TV industry of INR 417 crore to INR 885 crore.

�TV industry (Household) to rise from currently 161 Million to 191 Million which will boost

bottom line directly.

�Channel carrying capacity have increased significantly to 1000 which will help earn more �Channel carrying capacity have increased significantly to 1000 which will help earn more

revenues in the form of subscription.

�Phase I & Phase II are almost complete in digitizing and setting up set top boxes.

�Phase III & Phase IV regions work has been started, once the entire country becomes the

digitized the full benefits will go to the broadcasters, they will enjoy high operating leverage

which will boost bottom-line.

�Industry subscription to reach 63000cr by 2018 a exponential rise of 2.2 times.



�Digitization will help broadcaster to get better rates in advertisement.

�Also economic recovery will add further steam, which will give exponential returns.

�Improved standards of living and increasing literacy rates will benefit news channels

immensely.

�Share of the news domain has increased from 6.2% in 2012 to 7% in 2013 this shows the

growing awareness among public.

�In India there are 392 news channels out of which Aaj Tak, Zee News, India TV and ABP News

are the major news domain in India.

�Interesting point to be noted here is that news segment has 7% viewership share as against

22% revenue share. Also the news channel commands better ads value due to its targeted

customer base.



Applying Buffet FiltersApplying Buffet Filters

10/7/2014www.drequity.in

Unearthing Multibagger Stocks9

Peter Lynch Style

•Simple Business to Understand

•Clean Financials

•Shareholder Friendly Management

Warren Buffett Style

•Strong Moat In the Business

•Available at Reasonable Valuation

•Lot of scope of Value Creation

Rakesh Jhunjhunwala Style

•Huge Opportunity to grow

•Available at Reasonable Valuation

•Lot of scope of Value Creation

Track record of high returns on capital.

"Here's what we're looking for...businesses earning good returns on "Here's what we're looking for...businesses earning good returns on

equity while employing little or no debt." - Warren Buffett's letter to

shareholders, 1987



25.53%

5.67% 4.89%6.68%

13.54%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Return on Capital Employed



Mar '14 Mar '13 Mar '12 Mar '11 Mar '10

Mar '14 Mar '13 Mar '12 Mar '11 Mar '10

25.53% 5.67% 4.89% 6.68% 13.54%

The best metrics to judge any company’s efficiency is to look at Return on Capital

Employed. Generally it should be 25% on an average for an at par return. In case of TV

Today it comes in exception case, since the company was in loss in the previous years and

now due to digitization and lowering of carriage cost TV today is going to see explosive

growth in its subscription revenue. As we can see for march ‘14 RoCE rose to 25% from

5.67% due to rise in operating profit margin because of rising Subscription and Ad sales.

...else pays it back to shareholders

"Most high return businesses need relatively little capital. Shareholders of

such a company usually will benefit if it pays out most of its earnings in dividends such a company usually will benefit if it pays out most of its earnings in dividends

or makes significant stock repurchases."- Warren Buffett letter to

shareholders, 1992.



Face Value 5 5 5 5 5

Dividend Per Share 1 0.75 0.75 0.75 0.75

In the last 5 years TV Today has

consistently delivered the dividends. Since

the media industry is at nascent stage in

India, TV Today Networks is growing



India, TV Today Networks is growing

consistently. Digitization is expected to

change the complete landscape of media

sector. The average payout of TV Today

has remained at lower levels in the last 5

years at 16%. We expect as the

digitization penetrates and the

profitability goes up the dividend payout

will increase.

A word on the management.

..."the certainty with which management can be counted on to channel ..."the certainty with which management can be counted on to channel

the rewards from the business to the shareholders rather than to itself..."- Warren

Buffett letter to shareholders, 1993.



Aroon Purie, Chairman & Managing Director

Koel Purie Rinchet, Whole Time Director

Anil Vig

Rajeev Thakore

Ashok KapurMr Aroon Purie

Board of Directors

Devajyoti Bhattacharya



Aroon Purie is an Indian businessman who is the founder-publisher and editor-in-chief of India

Today and the chief executive of the India Today Group. He is the managing director of Thomson

Press (India) Limited and the chairman and managing director of TV Today. He is also the editor-

in-chief of Reader’s Digest India.

He was conferred the Padma Bhushan, a prestigious and third highest civilian award, by the

government of India, for his contribution to Indian journalism. He has received numerous other

honours which include the B.D. Goenka Award for Excellence in Journalism (1988), 'Journalist of

the Year 1990' award by the Indian Federation of Small and Medium Newspapers etc.

Mr Aroon Purie

Strong MoatStrong Moat



Does the business has got the Moat?

Yes, TV Today has got the strong moat which has gained channel the No. 1 position in

Hindi news segment for such a long time. It can be seen from content to delivery of

news TV Today is unbeatable.

Strong presence in Hindi news genre: Aaj Tak undisputed market leader

�News being non-proprietary and largely non-exclusive in nature, the Content and

coverage is the most important part for any news channel.

�In such a case, where the content is highly homogeneous, usually the top one or

two players are key beneficiaries.two players are key beneficiaries.

�Aaj Tak has very well maintained its leadership position in the last decade.

�Hence, it has been seeing an exponential increase in its revenue market share.

�With a viewership share of ~18.5% in the Hindi news segment and ~8.7% of the

overall news segment, Aaj Tak commands an impressive 23% (as per FY13) of Hindi

news and 9.2% of overall news advertisement revenues.

�This signifies advertiser’s preference for Aaj Tak in a fiercely competitive segment

populated with 392 news & current affair channels.

�According to Census 2011, around 41.0% of the Indian population speaks Hindi,

followed by Bengali (8.1%), Telugu (7.2%), Marathi (7%) and Tamil (5.9%).

�The presence of Aaj Tak in the Hindi news genre dates back to 1995 when it used to

broadcast a 20-minute news programme in Doordarshan.

�Aaj Tak gained immense popularity through Doordarshan.

�Hence, it was launched as a 24 hour channel in 2000. Owing to its news credibility,

quality live feeds and the ability to bring news at the earliest it was soon able to

dominate the Hindi news genre.



dominate the Hindi news genre.

�It has remained the No. 1 channel in the Hindi news category ever since the launch.

�Other news channels like ABP News and India News are its key competitors.

�The revenues of TV Today have grown at a CAGR of 12.4% in FY12-14.

�Aaj Tak contributes more than 90% of revenues in TV today, however the other

channel will start contributing in revenues now as Headlines today the English news

channel has shown good growth in ad sales.

Huge Opportunity



Operating Leverage to play pivotal role, bottom line to go up multifold

�Digitisation has helped in increasing the channel carrying capacity from 80 channels

earlier to 1000 channels now.

�This has helped in reducing carrying cost to reduce especially benefiting news

channels since they have to pay higher carrying cost.

�News broadcasters shell out about 25-30% of their total revenue in the form of

carriage andcarriage and

placement fees. English news channels spend approximately 70% of their distribution

costs as carriage in the metros and are yet to receive an equivalent benefit in terms of

subscription from the metros.

�Promotion and distribution cost which include the carriage cost have declined from

87 crore to 81 crore for FY12 to FY14.

�Management is quite confident of declining carriage cost further in the future which

will help to increase the profitability of TV Today.



84 87 84 81 79 74

29 28 2721 17 14

0

20

40

60

80

100

1 2 3 4 5 6

Advertising &

Distribution

As a % of Sales

Declining advertisement and distribution expense on account of lower carriage fees



Declining advertisement and distribution expense on account of lower carriage fees

Source: Company, Industry, Dr Equity Research

Radio Business

�Radio Today Broadcasting Ltd, a fellow subsidiary, merged with the company

extending the presence of TV Today in the radio segment under the brand Oye 104.8

FM

�The company has a presence in the six cities of

Mumbai, Delhi, Kolkata, Amritsar, Jodhpur and Patiala

�Radio business is not able to keep pace with the competitors in the past and

continues to struggle.continues to struggle.

�Radio industry size is approx 1300 cr expected to become 3500 cr by 2018.

�Oye 108.4 FM contributes very miniscule 4% to the total revenues of TV Today.

Management is waiting for the govt nod for live news feed from there popular channel

Aaj Tak on there radio channel Oye 108.4 FM.

�We expect radio business to grow at slower pace in the future as well.



TV Today Synonym for TRUST

�News Business is very different business as compared to any other business. Since

the content remains more or less same but what makes the news channel great is the

Authenticity and the loyalty from its viewers.

�These two things have bee maintained by the TV Today for the 10 years in a row.

They have always make an impact whenever there is any national coverage or big

news, and this makes huge impact on shaping the image of any news channel.

Although there are big corporate with there deep pocket are involved in the business

like ZEE News, ABP News and ETV.

�But its the quality and reliability which makes the news channel more popular and

TV Today practices that very religiously well.

Mobile Internet Penetration to aid growth

�India is currently witnessing humongous growth in the data revolution, Good for the

content rich broadcasters.

�Currently there are 232 million internet users in India which holds strong growth for

the news platform like TV Today.

�TV Today can fetch good advertisement rates due to vast reach especially through

mobile applications. This aids another stream of revenue for TV Today in the future.10/7/2014 23

www.drequity.in


Two main sources of revenue for the broadcasters are - Advertisement Revenue and

Subscription Revenue. Since the Company is in the News genre, the primary source of

income for your Company is Ad sales revenue.

The ad spend on a channel depends on its market share, reach and the credibility and popularity

it enjoys with the consumer. The leadership position of Aaj Tak as the No.1 news channel has

contributed to the growth in advertising revenue. The Company’s 24 hour English News channel

“Headlines Today” and Hindi News channel “Tez” catering to the upmarket urban population

and Metro centric channel “Dilli Aaj Tak” have also contributed to the revenue growth of

the Company in the financial year ended 31st March 2014 and are expected to further

contribute for the Company in the coming years. The Company is constantly investing in the

content as well as distribution on the basis of detailed research in order to achieve better content as well as distribution on the basis of detailed research in order to achieve better

ratings.

With the increased penetration of digitisation including new platforms like DTH and IPTV, TV

Today is expected to benefit from increased subscription revenue through more transparency

and addressable reporting of subscription revenues.

TV Today also partners in the digital consolidation with the other group Companies to have an

edge on digital technology besides considering the potential opportunity in regional space and

leveraging the Groups strength in few other media platforms like Hindi newspaper etc.



TV Today will witness exponential

growth in its subscription revenues

once industry fully shifts to cost per

subscriber model.

Consumers look for the brand and a

reliable channel for daily news.

Especially the way TV Today reports

the news with its accuracy has

immensely benefited them.

The No. of TV Household is also The No. of TV Household is also

expected to grow from 161 million

currently to 191 million in 5 years.

Increasing literacy rates and standard

of living, people want to be updated

all the time. Share of total news

domain in the overall break up has

increased from 6% to 7% in last 5

years.

Source: Mc Kinsey10/7/2014 25

www.drequity.in


270 271

340

410450

31 31 33 35 37

0

50

100

150

200

250

300

350

400

450

500

2012 2013 2014 2015E 2016E

Ad Rev

Subs Rev

Advertisement Revenues & Subscription Revenues

Breakup of Viewership Share (%)



11.93 3.18

30.01

0.140.23

27.9

3.65

2.78

20.18

Hindi Movies

Hindi News

Hindi GEC

English Entertainment

English News

Others

Regional Movies

Regional News

Regional GEC

2012

15.1

3.3

30

1.10.1

25.4

3.4

3.6

18 Hindi Movies

Hindi News

Hindi GEC

English Entertainment

English News

Others

Regional Movies

Regional News

Regional GEC

2013

So

urc

e:

Fic

ci K

PM

G

Declining distribution expenses

Increasing subscription revenues



So

urc

e:

Fic

ci K

PM

G

and now Valuations...

“John Burr Williams set forth the equation for value,

which we condense here: The value of any business which we condense here: The value of any business

today is determined by the cash inflows and outflows -

discounted at an appropriate interest rate - that can be

expected to occur during the remaining life of the

asset.” - Warren Buffett‟s letter to shareholders, 1992.



Earnings Power Value (EPV)

The formula for EPV of a company is:

EPV = Adjusted Earnings x 1/R

Here, ‘R’ is the cost of capital.

TV Today posted an adjusted EPS (earnings per share) of Rs 10.31 in March FY14. If the

company’s profits were to stagnate and remain at Rs 10.31 per share going forward, and

applying the EPV formula here, we multiply Rs 10.31 with 1/12.5% (8% being my assumption for

the opportunity cost of capital) The reason we chose this number is because this would take the

earnings yield to 8% (inverse of 12.5), similar to what one would expect from a 10-year Indian earnings yield to 8% (inverse of 12.5), similar to what one would expect from a 10-year Indian

government bond.

This gives us a value of Rs 82.48 per share, which is TV Today intrinsic value as per the EPV

calculation.

Applying 3x multiple* to the above price gives us the approx intrinsic value of INR 247/share.

*3x times multiple is taken since TV Today is a growing franchise and its earnings are not going to stagnate at least for the

coming 10-years.

March 2011 29Un-Earthing Multibagger Stocks

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Margin of safety

Having ascertained that TV Today Networks Ltd is one of the contenders for

becoming a part of a portfolio that Warren Buffett would love to own, let us have a becoming a part of a portfolio that Warren Buffett would love to own, let us have a

look whether there is sufficient margin of safety in the company's current stock

price and whether one should invest in the stock at the current levels.



Buffett always insist on the Margin of Safety of 25% from the current share price. Because an

analyst can go wrong in estimating the fair value of a company. That is why Buffett always look

for a fair amount of Margin of Safety.

TV Today's current share price stands at Rs. 210, while Fair Value comes at Rs. 247. So there is a

margin of safety exist in the current share price.

There is a 18% undervaluation calculated at the current price compared to its fair valuation

which offers a reasonable level of Margin of Safety.

Margin of Safety

which offers a reasonable level of Margin of Safety.

March 2011 31Un-Earthing Multibagger Stocks

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12 Minute TRAI Ad cap Implementation could be a spoil Sport to the overall revenues

� Trai had mandated a 12 min ad cap implementation on all the broadcasters. However the

loss can be made up by increasing the ad rates. Currently TV Today has a 18 min ad per hour

and have to reduce the inventory by 33% in case of implementation.

� However the NBA (News Broadcaster Association) had challenged this mandate, in case of

adverse scenario the broadcasters have to reduce ads per hour to 12 min.

� Moreover digitization in phase 3 & phase 4 are yet to penetrate in such a case 12 min ad cap

is unlikely to happen. Also news channels are more dependent on ad revenue, to accrue the

full benefits of digitization in subscription revenues chances of implementation of 12 min ad

cap seems bleak.

TV Today's subscription revenues continues to lag behind as compared to its peers due to its

Risk & Concerns

cap seems bleak.

�TV Today's subscription revenues continues to lag behind as compared to its peers due to its

non presence in to regional markets.

�There is a delay in the digitization roll out by the government but that will be done sooner

rather than later.



We expect revenues of TV Today will increase from here due to faster economic

recovery, advertisement growth and expanding subscription base. There is a risk involved in 12

Minute TRAI Ad cap. In such a scenario it will hit the advertisement revenues of the channel due

to lesser ad in an hour. Channel will increase there ad rates to compensate the loss but how far

they can increase only time will tell.

Lacks in Scale and new Cannel Launches

�TV Today major revenue comes from only 1 channel which is Aaj Tak. They have no regional

presence as well. This reduces there bargaining power with the advertisers. There competitors

are having good regional presence.

Reputation Risk

�Paid news is the biggest risk any news channel suffers from. In case the past they have been �Paid news is the biggest risk any news channel suffers from. In case the past they have been

associated with such allegations which possess them with reputation at stake in the market.

Competition Risk

�Hindi news channel saw a lot of new players entry i the last 5 years. Aaj Tak faces huge

competition from Zee News, ABP News, India News etc. Any change in the audiences can

hamper the revenues stream significantly.

Digitization delay

�Delay in digitization roll out can hamper the ongoing growth in the business. Although the

complete digitization will result in to huge operating leverage which will significantly bring down

the carriage cost and will add to the bottom line multi fold.10/7/2014 33www.drequity.in


Conclusion from Head Equity ResearchLooking at the industry structure and the business model, we have arrived at the conclusion to

buy this gem.

This company possess enormous competitive advantage which can be evident from the analysis.

Management is clean and clear in there vision and integrity.

At this level share price gives us enough margin of safety and the way company has grown in the

past if it continues to do same it will create huge wealth for all the stakeholders.past if it continues to do same it will create huge wealth for all the stakeholders.

Dr Equity,Cerebral Advisory Services Pvt Ltd



Name Of Shareholder

No. Of Shares

held

Shares as a % of Total No. Of

Shares

Reliance Capital Limited4617153

7.75

Franklin India Smaller Companies Fund 948291 1.59

Shareholders with more than 1% stake



Life Insurance Corporation of India 926463 1.56

Damani Estate & Finance Pvt Ltd 896000 1.50

Ramesh Damani 819686 1.38

Total 8207593 13.78

Source: BSE India

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tv today networks ltd dr equity oct 2014 multibagger pick

Business

presence of tv today

introduction tv today

tv today network ho1072014

hindi news viewers

network tv

tv channels

mail today newspaper

news content