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No beating about the bush.
All the loss-making broadcasting businesses would now come under one roof and so would all the loss-making print and digital businesses
The Network18 Group announced a business-restructuring plan on Wednesday which involves the consolidation of its various activities under two entities - one, broadcasting and two, digital initiatives and publishing.
The group's main businesses have been haemorrhaging cash for over two years now, following ill-timed expansion and diversification on a massive scale between 2006-08. But will the restructuring help the bottom-line? Not quite. The stock market's reaction says it all. Network18 crashed by 14% today and TV18 collapsed by 12%.
In a filing to the Bombay Stock Exchange (BSE), Network18 said that all its TV businesses - including CNBC-TV18, CNN-IBN, IBN7, CNBC-Awaaz and the group's 50% stake in Colors, MTV, Nick, VH1 and IBN Lokmat - have been consolidated into IBN18 which will be the new TV18. Separately, the group's website (moneycontrol.com, in.com etc.), publishing (Infomedia, which mainly runs the magazines and yellow pages), sports and event management businesses will come under the new Network18.
The New Network18 will also hold all group investments in HomeShop18, Newswire18, DEN, Yatra and Capital18. Interestingly, the Yellow Pages and magazine-publishing businesses of Infomedia18 will be merged with Network18, while printing press operations will continue to remain with the company. This means that the loss-making and difficult-to-run printing business may be up for sale.
Under the rearrangement, shareholders with 100 TV18 shares will receive 68 shares of IBN18 (eventually TV18) and 13 shares of Network18, the company said. Besides this, those who have 100 shares of Infomedia18 will retain their existing shares and receive 14 additional ones of Network18 (taking the transfer of Yellow Pages and the publishing business into consideration).
According to Network18 Group CEO Haresh Chawla, "The New TV18 will be a compelling bouquet of the most vied-for channels in the Indian television space for all stakeholders - be it viewers or advertisers... New Network18 remains well-poised to exploit the gamut of opportunities offered by the television space."
Investors have heard similar stories before. By now, the astute among them may have also seen that when in doubt, the first thing promoters do (especially in media) is to restructure their businesses. It buys them time and allows them to again raise money by spinning a new story of growth. The truth is the group has been living on borrowed time and money. Some parts of its business came into the black thanks to massive slash-and-burn operations (see http://www.moneylife.in/article/8/6010.html) after years of high overheads and high salaries especially undermined by poor quality of output and low productivity. The group started getting rid of excess staff in early 2009 and the process is still continuing. In the March quarter, several businesses showed higher operating profits thanks to "other income" and lower costs but not higher revenues. How would shifting businesses from one legal entity to another solve this fundamental problem with its business model?
The problem starts with the fact that 40% of TV18's business is broadcasting that helps pull in revenues for other businesses. And there, revenues show not traction. Revenues were actually down in the March quarter even over the terrible quarter that was March 2009, despite the fact that this year's March quarter revenues should have been buoyed by the big event of the Union Budget. The silver lining is that one part of ibn18's business-entertainment channel Colors-is making money. But other broadcasting businesses of ibn18 (CNN IBN, IBN Lokmat and IBN7) are in deep losses again and have no real growth traction. Competition is intense because others can also play the same game as Network18 can. Their operational costs are high too, mainly because salaries are exorbitant, relative to quality and quantity of output. Most importantly, these news operations have no real edge; they are indistinguishable from the others. The 50% profit from Colors will be eaten up by losses from the news channels.
The second leg of the business - the sunrise business of digital content - is not going anywhere either. Web18 revenues were up by just 8.5% in the March quarter and profits fell. The fourth leg of the group - printing and publishing of Infomedia - is a combination of legacy business (printing, which belonged to Tata Press) and a bunch of money-losing new titles ambitiously launched against strong headwinds in advertising. Whether these businesses are under TV18 or Network18 is really cosmetic.
In short, the restructuring exercise of the group currently amounts to aimless shuffling of pieces on a chessboard.
The rally would be laboured and likely to be aborted abruptly
The market, which was down 1% on Wednesday, recovered all losses today on positive global sentiments. The Sensex shut at 17,651, up 180 points (1%) and the Nifty ended at 5,296, up 55 points (1%). The indices started the day with a sharp gain, taking cues from Asian markets. Trading was range-bound till early afternoon. The market came off its high in the late afternoon session, ending the day with a modest gain.
Asian stocks were up on Thursday as US retail sales grew at their fastest pace in four years. Key benchmarks in Hong Kong, Indonesia, Taiwan, Singapore, Japan and South Korea were up by 0.5% to 2.7%. However, China's Shanghai Composite bucked the trend and was down 0.2%. The Chinese central bank said that it will keep a loose monetary policy; however, it will use different policy tools as required.
Wall Street was up on Wednesday on a forecast from financial company State Street Corp, igniting optimism about the coming earnings season and helped the S&P 500 break above a major resistance level. The Dow rose 275 points (up 2.82%) to 10,018. The S&P 500 gained 32.2 points (3.1%) to 1,060.3. The Nasdaq advanced 65.6 points (3.1%) to 2,159.
Back home, annual food inflation eased to 12.63% for the week ended 26th June from 12.92% in the previous week, but fuel inflation shot up to 18.02% after the hike in rates of petroleum products.
Fuel inflation for the week under review rose sharply to 18.02% (from 12.90% in the previous week) after the impact of the fuel price hike. Prices of petrol and diesel were raised by up to Rs3.50 a litre, while that of liquefied petroleum gas (LPG) and kerosene were hiked by Rs35 per cylinder and Rs3 a litre respectively.
Industrial output is forecast to grow at 16% in May this year from a year earlier, lower than the annual growth of 17.6% in April.
India's car sales may go up by 12%-13% in 2010-11 to 1.7 million units as estimated by the Society of Indian Automobile Manufacturers (SIAM). In June this year, 1,41,184 cars were sold compared with 107,948 units a year ago, lower than the record 1,48,481 units sold in May. Sales of trucks and buses rose 44% to 52,211 units in June, while motorcycle sales rose by 30% to 715,985 units.
The Securities and Exchange Board of India (SEBI) on Wednesday relaxed the exposure margin requirement for stock derivatives, based on the feedback received from market participants.
Foreign institutional investors were net sellers of Rs49 crore in the equities market on Wednesday. Domestic institutional investors were net buyers of stocks worth Rs134 crore.
L&T Infrastructure Finance Company, a subsidiary of Larsen & Toubro Ltd (up 1.8%), has received the status of 'Infrastructure Finance Company' from the Reserve Bank of India (RBI) within the overall classification of a Non-Banking Finance Company.
KEC International (up 0.6%) has won orders in the transmission and cables space to the tune of Rs610 crore. In the transmission segment, the company has won total orders of Rs487 crore for turnkey transmission lines in Georgia, South Africa, Zambia, the Philippines and UAE. In cables, the company has won orders for supply of low tension, high tension and extra high voltage power cables worth Rs123 crore from various customers.
The board of Samyak International (up 4.8%) has approved increase in its authorised share capital from Rs3.50 crore to Rs7 crore; issue of 30,00,000 equity shares of Rs10 each to strategic investors at a price of Rs40 per share (Rs10 face value plus Rs30 premium) on a preferential basis.
Reliance Power (down 0.3%) has announced the financial closure of its 4,000 MW Krishnapatnam ultra mega power project (UMPP) being developed by Coastal Andhra Power Ltd, its wholly-owned subsidiary. The company executed financing agreements for the imported coal-fired UMPP located at Krishnapatnam, Andhra Pradesh.
The capital market regulator’s move to cut exposure margins in equity derivatives is a revisit to the pre-crisis days of leveraging and speculation
In a throwback to the pre-crisis period of 2007-08, when excessive leveraging and speculative activities were at their peak, market watchdog Securities and Exchange Board of India (SEBI) has once again sought to encourage risk-taking even by retail participants in the equity derivatives segment. In order to give a leg-up to the falling volumes in this segment, the regulator has slashed the exposure margin requirement on futures and options (F&O) trading by half.
SEBI has been forced to take this step as the recent uncertainty and volatility in the stock markets has seen investors shunning over-exposure to equities and seeking a safe haven in money-market instruments and debt-oriented funds. Intraday volumes of derivatives contracts on bourses have taken a beating as investors prefer to stay away from the see-sawing markets. With the markets moving in a tight range for a while, traders are also finding it difficult to exit their positions quickly. For the month of June 2010, the total number of contracts in futures and options on the largest stock exchange, the National Stock Exchange (NSE) was 77,078,089. Comparatively, the volumes were better during the month of May, which saw 80,960,515 contracts being traded. Average daily turnover has also reduced from Rs101,166 crore to Rs92,527 crore during this period. Since April 2010, a total of 216,269,174 F&O contracts have been traded on the NSE.
Admitting that investor confidence is a bit shaky, Monal Desai, VP and head – institutional equities (derivatives), Prabhudas Lilladher, said that the markets need to stabilise for this move to work out. “It is a welcome step from the regulator. Exposure margin was over and above the SPAN margin. It was an exchange levy just to safeguard the bourses from any default scenario. But for this move to work, markets have to stabilise first. Markets have been see-sawing so badly that retail investors have been affected. Markets have to settle down and there has to be a clear direction as to where we are headed. Even institutional investors have been hurt by this market. Stocks which look good on one day, get crushed the next day. So the confidence level is pretty much shaken.”
Sandeep Singhal, co-head, institutional equities (derivatives), Emkay Global Financial Services, believes that this move will not enthuse retail investors too much. “The margin level never really affects investor participation too much when there is a money-making opportunity. So it won’t have a significant impact. What it will do is reduce the capital adequacy requirement for brokers. To that extent, capital will get released from the system.” Alex Mathews, head-research at Geojit BNP Paribas feels that this move will boost daily volumes by bringing more investors to this segment and enable them to take bigger positions. But at the same time, he believes that it won’t lead to an excessive leverage situation as the SPAN margin covers 16 different worst-market scenarios that can occur in one day.
The last time SEBI had revised exposure margins was in October 2008, in the middle of the financial crisis, when the regulator had to step in to calm down a highly volatile market. SEBI had then raised the exposure margin requirement on F&O trading from 5% to 10%, in an effort to clamp down on speculative trading and also to discourage investors from exposing themselves to this segment. “That was the time when the market needed safety. It was a prudent action on the part of the regulator when it increased the margin requirement as the systemic risk was much higher,” said Mr Singhal.
A little more than two-and-a-half years since, the regulator has brought the markets back to the earlier level and now wants investors to dabble a bit more in equity derivatives. Hopefully, the regulator would have learnt a lesson or two from the financial crisis and done its homework before encouraging higher exposure to derivatives.
“Actually it (the margin) was not required. They have put it unnecessarily but it’s a good step. Even 5% margin is not required. The brokers and client’s capital was getting blocked unnecessarily. So client’s capital will not be blocked now,” said Deena Mehta, managing director, Asit C Mehta Investment Intermediates.