IBN18 sinking in a morass of poor revenues and high interest cost

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.

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