As the company’s flagship businesses show no signs of turning around, shareholders are nursing losses for over three years, since the shares got listed
It's three years now and the shareholders of ibn18 Broadcast Ltd are nursing a loss on their investments having invested in a glamorous stock in a glamorous sector. The stock ended at Rs100.49 on the day it got listed on 8 February 2009.
Almost three-and-a-half years later, yesterday, it was at Rs88.15. Most worryingly, the company shows no sign of making money anytime soon and its borrowings and interest cost may actually rise.
For the quarter ended March 2010, the company reported a consolidated loss of Rs22.49 crore. Though this was lower than the Rs34.62 crore of last year's March quarter, the loss was actually more than double of Rs10.60 crore of consolidated loss the company made in the December quarter of 2010.
Interestingly, while the shareholders may despair about the continuous losses and the sagging share price, who would say ibn18 Broadcast Ltd is not a success? Certainly not the management of Network18 group led by Raghav Bahl.
Even though pathetic financial performance continues to dog ibn18 Broadcast Ltd, which houses a clutch of news channels (CNN IBN, IBN7, IBN Lokmat), some entertainment channels (Colors, Viacom18, MTV, Nick and Vh1) as also Studio 18-the movie division of Viacom18, the management was extremely optimistic in a conference call with analysts last week. "I would say a very deeply satisfying quarter and year-end for us at Network 18 across all our companies. And you can see that there was a fairly decisive upswing in the second half of the year," said Raghav Bahl.
However, look closer and you will find that he was upbeat about the loss-making businesses of TV18, (a case of misplaced optimism-please see http://www.moneylife.in/article/8/6010.html) and not really about IBN's businesses except Viacom. As Mr Bahl put it, "extremely delightful thing for us is the fact that Viacom18 has broken through not just to EBITDA positive performance but to a second consecutive quarter of positive profit after tax and a higher profit after tax than the previous quarter. And we do again believe that the existing channels or the existing operations of Viacom 18 will be consistently profitable through the coming year. So these are two operations which have really broken through and are deeply satisfying for the management." Viacom made a loss of about Rs43 crore last year but seems to have turned around in the second half of 2010. But the most worrying part is that Viacom hardly enjoyed consistently rising revenues. Revenues were down sharply in the March quarter over December quarter. Profits came through massive cost-cutting.
The main business of ibn Broadcast, a bunch of news channels, led by the flagship CNN IBN, kept sinking in the March quarter. Mr Bahl's interpretation of the situation in the analysts' meet understated the present and promised a better future: "The general news channels have had a challenging year and therefore you will see the revenues have not been as buoyant as other entities but within the general news channels, the Hindi news channel has posted a very strong growth. The Marathi news channel too has posted, although on a small base, very strong growth. CNN IBN has held its own in a fiercely competitive market and having held its own in perception as well as audience share terms, we hope to see revenue traction very soon." The fact is, loss for the channel businesses almost trebled to Rs28.21 crore in the March quarter of 2010 from Rs10.96 crore in the December quarter.
What is sinking the company's flagship is CNN IBN's business model. It is simply not viable at the current level of costs and revenues. Some 80% of the revenues of the broadcast business went into production and administrative costs for the March quarter and another 30% into personnel costs, leaving a 10% hole in the revenue statement at the operational level itself. After this came a massive Rs13.72 crore or 30% of revenues as interest charges. IBN Lokmat enjoys no traction in revenues and is trying to cut its large losses (operating loss is 50% of the revenue) by cutting costs. In sum, IBN's core business of news is a widening hole. It can be filled up only with more borrowing or sale of assets, such as a possible public offering of its stake in Viacom18. For the foreseeable future, it cannot fill the hole with profits. There is nothing satisfying about the March quarter results of ibn Broadcast except the cost-cutting and slight revenue uptick at Viacom.
Mukesh Ambani, who had to leave telecom to his younger brother, is coming back into telecom in style. RIL-Infotel is the only company with a pan-India broadband licence. Is broadband the spearhead for a full-blown entry into telecom?
Last week, Reliance Industries Ltd (RIL), India's largest private-sector company, decided to re-enter the telecom sector by buying 95% stake in Infotel Broadband Services Pvt Ltd for Rs4,800 crore. Infotel was controlled by the promoters of the infamous Himachal Futuristic Communications Ltd (HFCL). More than 14 years ago, the tiny HFCL earned a lot of notoriety by being the highest bidder for new telecom licences when the telecom minister was Sukh Ram. Nobody knew who was funding HFCL. But unlike last time, this time it is clear who is funding Infotel, which is the only pan-India winner of the recently concluded broadband wireless access (BWA) auction. But what is RIL's game plan in telecom, a sector that is close to the heart of RIL's chairman and managing director Mukesh Ambani and which he had to give up when Reliance was split in 2005? RIL's re-entry into telecom is significant in many ways and has the potential to change the game altogether, as it did with Reliance Infocomm (now Reliance Communications Ltd or RCom).
Mukesh Ambani, who is known for his quick execution of mega projects, launched his 'dream' mobile services in 2003-04 with a slogan 'Kar Lo Duniya Muththi Mein', which means 'take control of the world'. Reliance Infocomm, launched in 2004, changed the whole scenario of the mobile industry, ushering it into a new era of huge subscriber volumes at low prices. Today, RCom has a subscriber base of more than 100 million while the country has a total wireless subscriber base of over 601 million. Can he do the same for broadband? And will he remain satisfied with only a broadband presence? Is this his backdoor entry into the entire gamut of telecom services, including voice and video? If so, what happens to the business models of the existing also-rans of the game like MTS and new entrants like Uninor?
To start with, the broadband business is ripe for the picking because Indian telecom providers have foolishly ignored the broadband market, creaming off money from the high-end customers who use broadband. Any honest survey of broadband customers will throw up huge dissatisfaction in billing, customer services, connection speeds and connectivity. RIL can easily take away a large chunk of this market as there is no barrier in shifting data providers as is there with voice.
The Indian broadband industry is at a nascent stage. India's total Internet subscriber base stood at 15.2 million as of end-December 2009, compared with the total fixed-line subscriber base of 37 million, indicating a penetration of 41%. The broadband subscriber base is 8.75 million as of end-March 2010. The industry is dominated by the digital subscriber line (DSL) segment which has 86% market share. State-run Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), along with Bharti Airtel Ltd and RCom, dominate the DSL market. Due to higher costs of fixed-line deployment and absence of unbundling of local loop, the growth of broadband services has remained restricted. No wonder, both the State-run companies enjoy 80% market share in wireline subscribers. On the other hand, the number of subscribers using data on mobile networks stood at 149 million during the same period. Given the higher mobile penetration and lower handset cost compared to personal computers (PCs), Internet and broadband services based on mobile platforms are all set to witness strong growth in India.
"RIL sees the broadband opportunity as a new frontier of the knowledge economy in which it can take a leadership position and provide India with an opportunity to be in the forefront among the countries providing world-class 4G network and services. A single 20MHz time division duplex (TDD) spectrum, when used with long term evolution (LTE), has the potential of providing greater capacity when compared to existing communication infrastructure in the country," the company said in a release.
Initially, RIL-Infotel will focus on retail and enterprise data consumers seeking wireless broadband connectivity for laptops, netbooks, devices and gaming consoles. Wireless data services will be the key offering along with voice-over-Internet protocol (VoIP).
Commenting on RIL's re-entry into telecom, Macquarie Research, in a note said, "We believe wireless data is a significant, untapped opportunity in India and most existing wireless incumbents are possibly not pursuing the opportunity with single-minded focus, as some of them are busy bringing their voice businesses to scale and free cash flow generation, yet others like Bharti are focusing on stoking voice elasticity-led growth in relatively under-penetrated Africa." According to the research firm, RIL would play an active role in stimulating the ecosystem comprising handset and device manufacturers, equipment vendors, application developers, application stores and user demand, without spelling out whether they would indulge in handset or device subsidies, which has been a key feature of successful wireless data take-up worldwide.
Interestingly, RIL will have the business very much to itself. RIL-Infotel won 22 circles (pan-India). US-based Qualcomm and Mumbai-based Tikona Digital Networks Pvt Ltd won four and five circles, respectively, while UK-based Augere Ltd was able to win in one circle. Bharti Airtel, the country's largest telecom services provider, was able to win four circles but failed to win key metro circles like Mumbai and Delhi. More surprising was the midway exit of incumbent Vodafone, RCom and Idea Cellular from the BWA auction. These players may have exited because of increasingly fierce bidding for 3G spectrum and their stretched balance sheets. Mukesh Ambani wants to usher in a broadband revolution both in urban and rural areas across the country by providing end-to-end data solutions and plans to create state-of-the-art technology. The market is there. How does it affect the other players in the business? Read that analysis tomorrow.
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