Can slash and burn mend the business model of TV18?

The management is very upbeat and analysts see a glimmer of hope since losses are down, but it is really too early to tell whether the company’s operations have merely moved from worse to bad

The TV18 group, which comprises the four businesses of broadcasting (CNBC and CNBC Awaaz), Web (moneycontrol.com and in.com), newswire (Newswire18) and print (Infomedia, which publishes magazines such as Forbes) claims to have reported an “extremely strong quarter” with consolidated revenues of Rs192 crore—a growth of 49% year-on-year. It labels this as a “comprehensive turnaround as TV18 is profitable at PAT level for the quarter”. The company recorded a PAT of Rs31 crore against a loss of Rs140 crore in the same quarter last year. Has there been a genuine turnaround or is it a case of slight temporary improvement? Let’s look at the numbers more closely.

The profit after tax (PAT) for the year came about in the following manner. Revenues increased by about Rs32 crore (a jump of about 20%) and operating expenses got slashed by Rs60 crore or 26%. It is remarkable that TV18 was effectively carrying Rs60 crore or 26% of extra expenditure per quarter! After all, revenues not only suffered as a result of this slash and burn, but actually increased. After this severe belt-tightening, operating profit (after deducting payment to CNBC, US), was Rs21.54 crore or a shade above 11% of revenues. Now, after this operating profit came net interest expense of Rs18.64 crore and depreciation of Rs12.14 crore. So, how did TV18 end up in the black? By other income of Rs21.74 crore. In effect, the core operations are still not making profits at the net profit level.

As far as the segments operations are concerned, Raghav Bahl, group managing director, sounded delighted with the results in a conference call with analysts. He said, “I would say a very deeply satisfying quarter and
year-end for us at Network 18 across all our companies… Revenues were buoyant not just in one or two businesses, but across the group and across every operation… Almost every significant operation is now EBITDA positive in a sustainable way, not just as a single quarter kind of flash in the pan.”

Once again let’s look closely at the segmented data. Some 40% of TV18’s business is broadcasting (CNBC and CNBC Awaaz), the flagship of the group that helps pull in revenues for other businesses. And there, revenues have actually been down even over the terrible quarter that was March 2009, despite the fact that this year’s March quarter revenues were buoyed by the big event of the Union Budget!  In March last year, revenues were Rs91.11 crore. This year it was Rs84.06 crore. So revenues were not really buoyant. And yet, Mr Bahl feels that “the two business news operations, which are the two CNBC channels, really bounced back very strongly and are now displaying the kind of strength that was witnessed in 2007-08 in terms of revenue buoyancy behind them. So the fact that they are back is fairly clear to us from the kind of growth we are witnessing.” If so, this quarter will show it. Web18 revenues were up by just 8.5%. Even on a higher revenue, net profit actually halved. There was a big jump in the revenues of Infomedia mainly because of one-time write back of its Business Process Outsourcing Business and also because revenues from several yellow pages directories were booked in the March quarter. Despite this huge jump in revenues, Infomedia still lost money.

While it is fine for the management to be upbeat about the future, there are lot of issues still with TV18’s core operations. What has saved the day for TV18 in the March quarter was slash and burn of enormous magnitude that should leave investors wondering about even the sanctity of these numbers of earlier years. As for sustainability of revenues and profits, the jury is till open.

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