The Hindu Business Line : T.V. Today Network: Invest

BIDS for the initial public offering of TV Today Network (TV Today) can be placed in the Rs 90-95 price band. The company, which is owned by the India Today group, operates two news channels: the well-established Aaj Tak in Hindi, and the fledgling Headlines Today in English.

There is scope for capital appreciation, thanks to the fundamentals and the likelihood of further liberalisation in Government policy on foreign investment in the news media. In this backdrop, investing in the IPO can be considered, which is been offered through the book-building route.

The price range indicated by TV Today for bidding is Rs 80-95. But given the bullish undertone in the market, the paucity of quality listed stocks in the growing media business and the impressive track record of Aaj Tak, the final pricing may be at the upper end of the indicated range. This is why investors may be better off bidding in the higher price range recommended. If the pricing turns out to be at lower levels, there would much to gain and nothing to lose.

An investment in TV Today can be considered for the following reasons:

Aaj Tak is well entrenched in the Hindi news space. But it does not occupy the position of strength that it did even a year ago. The launch of STAR News in Hindi and DD News, which joined the fray over the past two months, has cut sharply into Aaj Tak's market-share. In the near term, it may end up ceding a few more percentage points in terms of market share — about 29 per cent now — owing to the shifting preferences of viewers in the wake of choice that is suddenly aplenty. But over time, Aaj Tak is well placed to consolidate its hold, regain some of the lost market-share and grow its business.

The channel's track record in covering major news developments has been good — its coverage of the capture ofSaddam Hussain is a case in point. This should stand it in good stead as it battles competition from some 10 news channels in Hindi and English.

Over the past two-and-half years, the channel has built up a good support base amongst advertisers. Most top-notch brands find a place in its roster list. It has also managed to attract a host of smaller companies which have a regional bias and a focus on the Hindi belt markets.

The large number of advertisers who have stayed with the channel over the past two years and advance booking of a high proportion of the available advertising time provide stability to its revenue stream.

TV Today has a well-diversified advertiser base — the top 10 advertisers on the channel account for only about 20 per cent of the ad time — and this could help when business conditions turn difficult as has happened two years ago.

The average ad rates have more than doubled over the past two years. With intense competition, a similar spurt in ad rates appears unlikely. Over the next year or two, there may be pressure on ad rates, as advertisers too are now spoilt for choice.

In this context, the sharp rise in ad-time marketed augurs well. The channel has space for growth on this front. Here, it may have an edge over the competition due to its long-term relationship with advertisers and its proven track record in timely and comprehensive coverage of news.

The over 100 per cent growth in revenues and earnings notched up by the channel since its launch in December 2000 is not of much relevance, as it has come over a low base. Even without competition, the company would have been hard pressed to maintain such a pace. With the sea change in the Hindi news space, where six players are now jostling for viewer's attention, TV Today may be in for a period of steady, rather than spectacular, growth.

What should stand it in good stead is its scale of operations, which have been ramped up taking advantage of the lack of competition between 2001 and mid-2003. Its debt-free status also provides financial flexibility to bankroll business plans.

Headline Today, the English channel that went on air earlier this year, is likely to be a drag on profitability and resources. It has a share of just 9 per cent in the English news channel space. The channel may be hard pressed to establish itself and make a meaningful contribution to revenues, leave alone earnings.

If the company is to have a presence in this space, at least three-four years may be needed to carve out a share that would justify the entry in the first place. Though some basic and technical resources are shared with Aaj Tak, pay-offs for investing in the channel may take long to fructify.

Foreign institutional investors (FIIs) and non-resident Indians (NRIs) are not allowed to invest in the TV Today stock. The permitted foreign holding of 26 per cent has to be through the foreign direct investment (FDI) route. FIIs would neither participate in the IPO nor in secondary market trading in this stock. But strong domestic institutional support is likely to partially neutralise this factor.

There is a possibility of investment restrictions being relaxed. However, any progressive step in this regard would be made only after general elections. The valuation of the stock may improve if the investment framework is relaxed by allowing FIIs to buy shares, or if a strategic partner takes a stake through the FDI route; TV Today is attractive as a potential FDI play, as it caters to a mass market and enjoys good viewership spread across the socio-economic spectrum, thus enhancing its appeal for advertisers.

In the offer document the company has attempted to portray an inflated view of profits in the April-July period by taking advantage of an accounting technicality and indicating lower production costs. But even if this element is removed, the earnings seem adequate to support the expansion in the equity base and offers scope for gains.

Salient features

SHARES on offer, 14.5 lakh — 10 lakh by the company and 4.5 lakh by shareholders, including the promoter group.

50 per cent is reserved for qualified institutional buyers (QIBs), 25 per cent for retail investors and the rest for non-institutional investors.

The minimum application size for retail investors is 100 shares subject to a maximum of Rs 50,000. If this is exceeded, the bid would be treated as non-institutions category.

Three bids can be indicated in the bid-cum-application form.

The book-building period is between December 18 and December 27, 2003.

The stock will be listed on the NSE and the BSE.

The post-IPO equity would be Rs 29 crore.

There would be 58-lakh shares with a face value of Rs 5.

The book running lead managers are JM Morgan Stanley and Kotak Mahindra Capital Company, and the registrar, MCS Ltd.

The company Web site is www.aajtak.com, and the compliance officer, Mr Manish Nayyar, can be reached at manish.nayyar@aajtak.com for pre- and post-offer issues.

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