Mumbai/New Delhi: Reliance Industries Ltd (RIL) on Tuesday denied reports on talks aimed at acquiring a stake in Network18 Media and Investments Ltd, which runs the CNBC-TV18, CNN-IBN and Colors television channels.
The news led to a spike in Network18’s share price, with analysts saying such a move would fit in with the RIL plan to offer broadband wireless access (BWA) nationwide and sell low-price tablets running apps tied to that service.
Network18 issued a release to BSE that the company hasn’t concluded any agreement in connection with any proposed investment.
Mukesh Ambani, the promoter of RIL, is looking to acquire a stake in Network18, The Wall Street Journal reported earlier on Tuesday, citing people it didn’t name. The report did not specify what Ambani’s share would be and if he was buying it in a personal capacity or via RIL.
Network18 said it didn’t comment on speculation as a policy. Raghav Bahl, the promoter of Network18, and B. Sai Kumar, group chief executive, were unavailable for comment. An Eenadu group official said the report was speculative in nature and that the group would not like to comment.
The Journal report had said that one of the options being considered was for Ambani to take a minority stake in Network18 and then combine the latter with Eenadu TV. Ambani already has a stake in Eenadu.
Network18’s stock shot up by as much as 20% following the Journal report, its biggest intra-day gain since November 2009. The stock closed at Rs 37.7, up 4.29%. The benchmark Sensex fell 1.33% to 15,175.08 points. RIL fell 3% to Rs 713.55.
Going by Network18’s finances, the company could do with an investor, analysts say.
At the end of September, net debt stood at Rs 1,432 crore. While the debt-equity ratio is a moderate 1.17, free cash flows have been negative for the past couple of years. New businesses continue to burn cash and debt servicing has become a major issue.
In the 2011-12 fiscal year, the company reported consolidated earnings before interest, tax, depreciation and amortization (Ebitda) of Rs 244 crore. That barely covered interest payments of Rs 226 crore for the period. Things aren’t better this year. In the September quarter, after adjusting for one-time expenses, consolidated Ebitda stood at Rs 23 crore, while interest payments were about three times as much at Rs 63 crore.
Whether the deal takes place or not, there’s a need for capital restructuring at Network18, said Nikhil Vora, managing director at IDFC SSKI.
“With a strategic investor in tow, Network18 will be able to leverage itself better. The next six months to a year don’t look good for the media industry and interest rates will continue to be high,” he said. “In an environment like this one, you cannot expect incremental capital from financial investors. Network18 will need strategic investors to manage debt levels and sustain the business.”
Vora added that the group will need to unlock the value of assets such as CNBC-TV18 and the Web publishing business.
“In Colors, they already have a strategic investor in place—Viacom. They need to unlock similar value for other assets,” he said.
In the past few years, Ambani has been seeking to enter new avenues such as retail, hotels and hospitality, he said. “Media being a large and lucrative space, both globally and in India, I wouldn’t be surprised if the group jumps right in.”
While there is an interest in the media business, there aren’t too investment options, said analyst S.P. Tulsian.
“Media is a lucrative area and some of the top industrial houses of India are interested in entering this area. The problem is that while the suitors are there—there are very few companies within print and electronic media that are up for sale,” he said. “The main groups—The Times of India, India Today, Hindustan Times, etc.—are just not looking for suitors.”
The move if true would work to the advantage of both, said a Mumbai-based telecom analyst at a multinational brokerage firm who is keenly tracking RIL’s moves in the sector. In June 2010, RIL bought the Nahata family-run Infotel Broadband for Rs 4,800 crore. Infotel was the only firm to win BWA spectrum across the country in last year’s spectrum auction.
RIL is expected to launch low-cost, tablet-based broadband services on this spectrum using the TD-LTE (time-division—long-term evolution) standard. The tablets are expected to cost around Rs 10,000 and provide users with high-end, Internet-based multimedia entertainment and transaction-type services. The TD-LTE technology used by Infotel is expected to provide download speeds of up to 100Mbps and upload speeds of as much as 50Mbps.
CNBC audiences are the kind who would be keen tablet users, said the analyst cited above. Besides which, compared with most of the media that’s doing various things in the wireless space such as iPad apps, CNBC hasn’t done much as yet and it would make for a “great partnership”, the analyst said. Still, a partnership would make more sense than an acquisition, said the analyst. This would be similar to the kind of accords that most other telecom operators enter into, with revenue sharing and multiple partnerships. This is more cost effective as the telecom business involves very high capital expenditure, he said.
Mobile TV as it exists right now has not reached the aggregator stage as has the music industry in India, he said. Once such a shift takes place, the environment will be different.