Network18 in consolidation mode, turnaround is sometime away

Network18 and subsidiary TV18’s reported June quarter numbers indicate a possible turnaround over the next few quarters.  

Consolidated losses for Network18, which owns about 57 per cent stake in TV18 and runs digital, publishing and e-commerce operations, came down to Rs 44 crore (Rs 440 million) (excluding one-offs) in the June quarter as compared to Rs 70 crore (Rs 700 million) in the year-ago one.

Network18’s consolidated revenue saw growth of 27 per cent year-on-year to Rs 708 crore (Rs 7.08 billion).  

A performance break-up of individual segments is not available. The company says reduction in operating losses was led by its TV operations, especially its entertainment bouquet and general news segments.

The company has indicated its smaller digital content vertical has also seen a turnaround.  

This is the first quarter after the change in management control from the promoters led by Raghav Bahl and Ritu Kapur to Reliance Industries.

The latter is the sole beneficiary of Independent Media Trust (IMT), which has acquired controlling stake in the Network18 group.  

While the results are not strictly comparable due to the acquisition of ETV, analysts say the numbers for TV18, which houses all the key assets of Network18, are disappointing.

TV18 reported growth of 33 per cent in operating revenue to Rs 528 crore (Rs 5.28 billion) over the year-ago quarter but a fall of six per cent as compared to the March 2014 quarter.

The Street had expected an improvement on a sequential basis, due to the consolidation of ETV numbers from January and benefit of higher election spending.

Estimates had pegged the revenue at about Rs 600 crore (Rs 6 billion)  for the June quarter.  

Most peers reported higher advertising revenue growth on the elections. Zee Entertainment’s ad revenues grew 17 per cent over a year; on a sequential basis, the growth was seven per cent.

The Network18 stock is down 4.2 per cent after the declaration of results to Rs 49.50 currently.

TV18’s stock is down by 3.7 per cent from the Rs 30 levels over three sessions to Rs 28.90 currently.  

The reason for the disappointment and sequential decline could largely be due to the exit of top management.

Group chief executive Sai Kumar, chief operating officer Ajay Chacko, and chief financial officer R D S Bawa all quit after the change at the top.

“We believe the temporary vacuum at top management adversely impacted the first quarter financials,” says Hardik R Shah of K R Choksey in a post-results note on TV18.  

Says another analyst, “It will take one or two quarters for the company to stabilise, given that there is a new promoter at the helm and a new management is likely to take over at the operational level.

This is a year of consolidation.” The results were also marred by a number of one-offs.

Network18 reported a consolidated loss of Rs 1,153 crore (Rs 11.53 billion) due to one-time adjustments of Rs 1,045 crore (Rs 10.45 billion). TV18 reported a consolidated loss of Rs 214 crore (Rs 2.14 billion) due to one-time adjustments in the quarter of Rs 223 crore (Rs 2.23 billion).

Reduction in value of assets, write-offs and provisions for non-recoverable and doubtful loans and advances led to the one-time impact at both companies.

While Network18 had losses prior to exceptional items, TV18 had a profit of Rs 9 crore (Rs 90 million) at the pre-tax level.

The company had a net profit of Rs 4.8 crore in the year-ago quarter.  

Though the TV18 numbers are higher than the same period a year before, the worry for analysts is at the operational level. Kotak Securities’ Ritwik Rai believes the general news operations will take some time to get steady, given the departures of senior editors across channels in recent quarters.

Increased competition with several new launches and strengthening of second-rung general entertainment channels (Life OK, SAB) are likely to pose challenges.

The spat between broadcasters and distributors could also impact the company, with lower visibility of subscription revenues in the near term.  

The key positive, says Rai, is on the business news side, which has been able to withstand competition and will gain significantly if positive market sentiment persists.  

The other positive at the operational level is the content sharing deal between Network18/TV18 and Reliance Industries’ telecom venture, RJio, which expects to launch its operations in FY16.

Hardik Shah of K R Choksey says the company will have a new avenue to monetise assets without any additional cost; hence, incremental revenue will contribute directly to its bottom line. At this point, though, the benefits are difficult to quantity.  

Debt levels, too, are down from a peak level a few years ago of about Rs 2,000 crore (Rs 20 billion). While the latest debt number is not available, analysts estimate it to be under Rs 500 crore (Rs 5 billion).