Weak macro environment and turmoil in financial markets continue to affect Television Eighteen India’s (TV18) businesses.
The advertisement revenues specifically from initial public offerings, new fund offers and capital market participants that contributed a significant portion to the revenues in the past have dried up, impacting the news and the web businesses.
We believe though the company’s news business has off late been trying to identify new advertisers to make up for the slowdown in the revenues from the banking, financial services and insurance vertical, the revenue growth will continue to be slower.
We expect the news business’ revenues to grow by 9.4% and 11.8% in FY2009 and FY2010 respectively, as we expect the ad-rate growth to slow down considerably.
However, consequent to the increase in the expenses outpacing the revenue growth, we expect the operating margins in the news business to decline from 41.5% in FY2008 to 30.5% in FY2009 and 25.4% in FY2010.
We believe while TV18 possesses an attractive media model with potential to deliver hefty revenue and profit growth, the near-term performance will continue to be severely impacted by the very weak macro environment across its businesses.
The gestation losses of new portals in Web18 and Newswire18 will neutralize the profits expected from the news business thus leading to minimal profits in FY2009 and FY2010.
We thus revise our sum-of-the-parts (SOTP) price target to Rs116 and maintain our BUY recommendation on the stock.