Network 18 Media -Book Out- Sharekhan
Network18 including its constituent businesses faced an extremely tough time over the past two financial years with the advertisement market plummeting during the period.
With most of the group’s businesses in investment mode at that time, the group as a whole had faced heavy cash losses, had high financial leverage and gone in for a slew of equity dilutions in all the group companies to tide over the difficult times.
With the advertisement market showing strong signs of revival now and giving rise to expectations of a good growth in the group’s constituent companies (TV18 and IBN18), the Network18 stock has had a good run in the past couple of months. It has delivered a return of 48% in April and May 2010. However, we believe that trading at a 12% discount to the sum-of-the-parts valuation of Rs176 (pre-holding company discount) the stock price fairly factors in the improved outlook for the group.
In our opinion, a high net debt of Rs803 crore (a gross debt of Rs2,054 crore) and the consequent interest cost would continue to be a drag on the profitability of the group as a whole. We further opine that IBN18 will be the outperformer within the Network 18 group and thus one would do better to invest in IBN18 rather than in an investment vehicle like Network18.
IBN18 is likely to register a good traction in revenue and earnings in the coming years as it monetises the success of Colors (including the launch of Colors in international markets which will rake in substantial pay revenues) along with the other Viacom18 properties. Thus we advise investors to book out of the stock.
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Category: Broker tips
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