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S. Vaidya Nathan

SHAREHOLDERS of New Delhi Television Ltd (NDTV) can remain invested, as there could be a scaling up of revenues and earnings over a one/two-year period. The recommendation is also underpinned by our positive view on its business channel — Profit — to be launched tomorrow. The stock has risen by about 30 per cent from our last `hold' recommendation and has gained 85 per cent over the initial public offering price of Rs 70.

Despite the recent rise, there may scope for further gains by adopting a hold strategy. The possibility of the business channel soaking up resources without a commensurate contribution to revenues within a two-year period is the principal risk to our recommendation.

As `Profit' gets off the block, the attention is bound to be on how it fares in terms of audience share and advertisement support. It will take on CNBC TV-18, which has benefited from a lack of competition in the business news genre so far.

This is a niche space that may provide a business opportunity for only a couple of players (in Hindi and English) over the long term. There are several aspirants now with the launch of CNBC TV 18's Awaaz, and forays by the Zee, Sahara and Times group as well. NDTV, too, could launch a business channel in Hindi once it stabilises its positions in English.

NDTV has the potential to occupy a position of strength in this space over the long term. It had started a business-cum-general news slot between 9 am and 4 pm on its English platform, NDTV 24x7, a few months ago. Despite a diffused focus, the channel managed to improve its audience share.

This suggests that its focussed business channel could wean away viewers from CNBC TV 18 even as it could also expand the market. NDTV's coverage of the Ambani family spat has also been aggressive and impressive. If it manages to sustain such a tempo in covering corporate events, it could augur well for the business channel. There is scope for considerable improvement in the quality of programming in the business news genre. NDTV has the track record to push ahead in this regard. CNBC TV 18 has, over the years, established an equation with Corporate India; this is a key factor to attract viewers to the channel, especially during the earnings season and when there are corporate actions such as mergers, acquisitions and takeovers.

This is, however, an advantage that could be neutralised by NDTV's brand equity and ability to network, which has given it an edge in reporting general news over the years. We believe it would be able to replicate this in the business news genre as well; the experience with the business slot on NDTV 24x7 over the past few months strengthens this view.

In the English news domain, NDTV 24x7 has a stranglehold, though the breadth of its coverage leaves a lot to be desired. Well-positioned news programmes between 6 pm and midnight, a track record that dates back more than a decade, and the strength in current-affairs-based feature programmes, especially on weekends, have helped it gain a dominant position. This has enabled it attract top-of-the-line advertisers with premium rates on prime time.

In the Hindi news space, NDTV India has managed to edge closer to the long-time market leader, Aaj Tak. The battle is likely to continue in earnest as Aaj Tak has revamped the channel's appearance and programming. In 2004, its audience share rose only modestly as NDTV India managed to grow at a faster pace to nibble away at Aaj Tak's lead. A slew of feature programmes have helped NDTV India gain market share. This has been the more significant development for investors in the stock, as the company's dominance in English news was a given.

A well-diversified advertiser base has ensured that NDTV has been able to build a healthy revenue stream within a year of entering the business of broadcasting (it was earlier a content provider for Star News, which now has a Hindi news channel on its own). The level of revenues in the July-September quarter points to an encouraging trend, as it did not have the prop of Parliamentary elections.

As the share of news channels in advertising pie increases gradually, NDTV appears well-placed to garner a sizeable part of the incremental ad-spend. With the addition of a business channel, it would also be able to market its slots in a composite manner, attract more clients and garner attractive rates. NDTV has managed to ensure a tight control on costs; it has retained most of its key staffers and yet kept the increase in employee costs to about 20 per cent at a time when poaching has been rampant as news channels proliferate. If this trend is maintained, it should augur well for enhancing content and profitability.

The launch of a business channel has the potential to improve margins if the performance of CNBC TV 18 is an indicator. It may, however, take at least a year or two for the business channel to start making a contribution to profits.

The period is likely to shorter as NDTV has to make only incremental investment in infrastructure. It could also leverage personnel resources across channels with beneficial effects.

A delay beyond two years in generating pay-offs could be a drag on valuation. If it manages to acquire a position of strength, prospects for hiking subscriber charges and eventually becoming a pay channel at a later date could improve.

If the regulatory framework is altered to permit FIIs to invest in media stocks within the 26 per cent limit allowed for FDI, it could improve valuation levels, as NDTV would be a preferred play for its strengths and clarity in ownership structure.

Our recommendation does not factor in gains linked to progress on this score, though a part of the recent gains appear linked to the possibility of changes in the regulatory framework.

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