The Hindu Business Line : NDTV: Hold

The ability to at least sustain the scaled-up level of revenues in the quarters ahead, without a big-ticket event,such as Parliamentary elections, will be critical for NDTV to emerge from the red. This, however, is not likely to be easy as there is intense competition, says S. Vaidya Nathan.

SHAREHOLDERS of New Delhi Television (NDTV) can retain their holdings at the price level of about Rs 85. Our recommendation is underpinned by the scaling up of revenues that is happening , and the prospects of an improvement in valuation levels, especially if the investment norms for foreign portfolio investors and NRIs in media companies are liberalised.

The initiative to carve out a 9x4 business and news slot could help NDTV challenge the higher viewer share of CNBC India during that time slot, expand audience share and, over the long term, deliver ad revenues. NDTV, however, has several hurdles to cross before it can report a respectable level of earnings.

Any upside of 20-25 per cent in the NDTV stock can be used to contemplate profit-booking on at least a part of the holdings, and switch to TV Today, our preferred choice among news channels.

The risks to our recommendation are the possibility of revenues tapering off over the next few quarters with the elections out of the way, the earnings remaining in the red beyond a two-year period, the quantum of profits turning out to be moderate in relation to the resources deployed, and the expansion of the universe of listed media stocks.

Key is sustainability

NDTV has been in the broadcasting business for about 15 months. It operates the English news channel, NDTV 24x7, and the Hindi News Channel, NDTV India. Earlier, it was a content provider to STAR News. A long haul is ahead before NDTV can match the profitability levels that it notched up as a content provider. Investors would also have expectations of higher levels of profitability and earnings from an integrated play to compensate for higher risks. If NDTV fails to match up to these expectations over the next two/three years, the valuation of its stock could take a knock as investors may lose patience. This is why we have recommended partial profit-booking at higher levels.

As indicated in our IPO analysis, enhanced audience and advertiser interest, driven by Parliamentary elections, has helped NDTV scale up its revenues to a level that has covered its operating expenditure in the January-March quarter. This trend is likely to continue in the quarter-ended June 2004. The ability to at least sustain the scaled-up level of revenues in the quarters ahead, without a big-ticket event such as Parliamentary elections, will be critical for NDTV to erase the red in its earnings card.

This, however, is not likely to be easy as there is intense competition, especially in the Hindi news channel space.

Picture is blurred

NDTV 24x7 dominates the English news space. This should enable it to attract advertisers in number and of quality as it has in the past. It has built up an impressive roster of advertisers for news programmes on prime time on weekdays and for its feature programmes on weekends.

There is, however, considerable room and a need for expansion of the advertiser base. For NDTV India, competitive pressures may stunt growth as it battles with STAR News for the second slot in the Hindi news space. TV Today's Aaj Tak is ahead on audience share, advertiser support and ad rates, and is well-placed to remain Numero uno. The following are a cause for concern:

If one compares the flagship channels of TV Today and NDTV, the former's strength becomes clear. NDTV 24x7 does not have the kind of advertiser support Aaj Tak has. This is despite the brand equity that NDTV enjoyed as a content provider of repute for close to two decades. News capsules on Aaj Tak in the afternoon and early evening, too, attract significant advertiser support.

Considering that NDTV 24x7 has been around for only 15 months, the difference in advertiser support is stark. In-house promos dominate even on prime time, indicating sizeable advertisement time that is yet to find takers. Aaj Tak is well-established in this respect as it has demonstrated its ability to notch up and grow its ad revenues even when a prop such as Parliamentary elections is absent. Unless the scale of advertiser support is ramped up, the risk of the NDTV's bottomline remaining etched in red looms large.

As far as content goes, the breadth and depth of news coverage on STAR News and Aaj Tak in any half- or one-hour is more wide-ranging than NDTV. The risk of NDTV 24x7's viewers migrating to alternative channels, especially in the Hindi-speaking regions, exists.

If viewers find there are gaps in news coverage on a daily basis, the experience and trust plank linked to longevity, and widely publicised by NDTV, may not serve as a selling card. If this risk becomes reality, it could be detrimental to the company's efforts at ramping up advertiser support.

NDTV India is not a drag on the company's performance now in the manner TV Today's Headlines Today is. NDTV India, however, faces a long battle with the resources-rich STAR News before it can fortify the second slot behind Aaj Tak. This battle has the potential to affect profitability in the next couple of years.

Given the modest contribution of Headlines Today, TV Today has the flexibility to drop the channel at a time of its choice and focus on consolidating its presence in the Hindi news space; for NDTV, both the Hindi and English news channels are critical as its flagship channel in English does not offer the kind of revenues bestowed by Aaj Tak on TV Today; its Hindi channel also makes a significant contribution to revenues.

Notably, Aaj Tak has also added a few percentage points in audience share after having suffered a slump when new channels — especially DD News — were launched last year.

NDTV has to quickly translate its success as a broadcaster into a rich coat of black on its earnings card. The longer this takes, the greater would be funds needed to bankroll losses and growth initiatives, and weaker would be its position to raise resources for the same. Unless, of course, it opts for an foreign partner through the FDI route.

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