17July2009
Network 18 Media and Investments has announced its first quarter numbers of FY10. It has reported consolidated net loss of Rs 36.3 crore and net sales of Rs 225.7 crore.
Commenting on the results and when the company would start seeing profits, Raghav Bahl, Editor of Network 18 said the company was almost at break-even point already and should report operating profits by the end of the calendar year 2009.
On the company’s focus for the year, Bahl said the network would see operating margins by the last quarter of calendar year 2009. He added that he would like to focus on current businesses and had no capex plans as of now. “Our main focus is to become cash positive on all businesses,” Bahl said.
The main problem Network 18 was facing was interest costs for the TV18 balance sheet, Bahl said. “When you look at complete bottomline profitability, if you look at the results, the problem is only one. We had Rs 22 crore of standalone loss on TV18 and we had an interest cost of Rs 30-31 crore. Debt is the only issue and we have acknowledged it in the past. We have to get that debt off the balance sheet. Once you take that off, the interest number comes down and we come back to bottomline profitability.”
Here is a verbatim transcript of the exclusive interview with Raghav Bahl on CNBC-TV18.
Q: Q1 numbers too, there are operating losses at TV18. By when do you think you can start reporting profits at an operating and a net level along with your subsidiaries, the operations at net, Infomedia all put together when can you start to get back to profitability again?
A: We should be able to hit operating profitability by the end of the year because the operating profitability of the business news channels, although operating on a 17% margin which is much lower than what they have been operating on, is positive. Web18 is headed towards operating breakeven. Infomedia as well should be operating breakeven and Newswire18 is almost operating breakeven. So I think operating profitability is pretty much a given and we should hit it before the end of year.
When you look at the complete bottomline profitability — if you look at the results, the problem is only one; we had Rs 22 crore of standalone loss on TV18 and we had an interest cost of Rs 30-31 crore. So there is only one problem on the balance sheet and that is the debt and that is something which is not something that we are acknowledging today, we have acknowledged it in the past. So we have to get that debt off the balance sheet. Once you take that debt off the balance sheet, the interest number comes down and we come back to bottomline profitability.
We also have clearly shared with our shareholders the roadmap to taking that debt off the balance sheet. We are doing a rights issue, are hopefully in the final stages of regulatory approval. Once we have that rights issue, we have got Rs 300 crore loan liability which will be extinguished by early next year or thereabouts. Just that one extinguishing of the loan liability takes off Rs 45 crore of interest burden on an annual basis from the balance sheet. So the bottomline profitability depends on when we can take a large amount of that debt off operating profitability. As things stand today, there’s no reason why we should not be healthily there by the last quarter this year.
Q: Just to clarify, operating profitability by the end of calendar year 2009 or by the end of FY10?
A: I think calendar year 2009. We are about Rs 9-10 crore positive on the business news channels, we are about Rs 4 crore negative on Web18, we are about Rs 2 crore negative on Infomedia and we are about Rs 40-50 lakhs negative on Newswire18. So we are pretty much breakeven already. So I think I am being conservative when I say last quarter this calendar year but there is no reason why we won’t hit operating profitability. The problem is the interest number that is coming in which is a colossal Rs 31 crore and for that we have a roadmap laid out to reduce that.
Q: We talked in the past about plans that there are to scale down the net debt for the company but just to understand it better – any target you have set out, by the end of FY10, where would you expect to see net debt at?
A: We have got Rs 3 crore loan liability which we will certainly extinguish. The other loan liabilities are really much longer-term and it doesn’t make sense from a shareholder perspective to extinguish an eight-year loan which can be used much more profitably to leverage shareholder returns. So I think we will knock off the Rs 300 crore of short-term loans that is going to be coming due which as I said will straight away save nearly Rs 45 crore of interest costs on a per annum basis. We will keep the long-term loans because we believe that’s good for generating shareholder returns and once revenues have come back to normal at the business news channels, it is simple arithmetic to say that the balance sheet would be back on strength. Also, the fact that Web18 is also getting out of its investment phase, the fact that Newswire18 is out of its investment phase, the fact that Infomedia has been cleaned up and is out of investment phase is in fact going to be hopefully PAT positive very soon. Once you put all these things together I think the roadmap is clear but I mean these are words – we have got to get them done.
Q: When does business start to pick up – revenues of four news operations have been quite sluggish as well – what is your own estimate of when advertising revenues start to pick up, distribution revenues pick up because ad revenues are the first to get hit in a downturn and often the last to come back? Are you seeing the first signs of recovery and by when can the ad revenues get back to where they were a year or year-and-half back?
A: If you look at TV18 today, our business news channels now are about 50% of our business – 50% of the business is non-business news channels. The non-business news channels are growing fine. That revenue is on a growth path. Unfortunately, we had the curse of the leader in the business news channels because we are the category. The category does about Rs 250 crore of revenues and I think we are Rs 225 crore out of that. So when we gain, we gain big – when we lose, all the losses come to us as well i.e. when the industry itself loses revenues, all those are our losses. It is the curse of the winner.
As far as turnaround is concerned, we are seeing it. We are beginning to see it but to be able to say with complete confidence that we are back to the 2007-08 revenue levels, I think we will have to wait for the October to March six-month period because that’s really where we get roughly 65% of our revenues – the first two quarters we don’t get that much revenue. So even if one does better in the next quarter, one would hold ones horses on proclaiming victory because that is in any case a thin quarter. So October to March – can we come back to 2007-08 levels? It will be wonderful if we can. Are we confident? I think we are going to be cautious about that.
Q: Just to come to Network18 for a second – the perennial problem for investors has been how to value Network18. While they can value IBN and they can value TV18, some of your other properties have consistently struggled to give appropriate valuations to, which is why they can’t arrive at a valuation for assets and then give a holding company discount, which is typically how holding companies are valued in this country. Can you give us some sense of what different properties are valued at in your eyes including likes of Indian Film Company or even Homeshop18?
A: Since you have asked for my eyes, do let me qualify that this is going to be obviously biased since it is my eyes. Let us look at the Indian Film Company. The Indian Film Company’s performance is as good as any in the country and I would wager that you can benchmark it to players like UTV and Eros in the film business. So clearly UTV’s film business is valued by the market and there should be a valuation ascribed to the Indian Film Company. The problem there is that we have a small stake and our stake therefore is not getting consolidated at any level and therefore that’s disappearing into a black hole. It is a problem that we would like to address. But once and hopefully that value gets known to shareholders, I am sure that will get valued, but as I said, if you look at the audited results of the company as of March 31, they’ve done Rs 300 crore of topline and they have done Rs 31 crore of PAT, which speaks for itself. I would wager that was the only film company which was profitable last year in India but is getting zero valuation.
Homeshop18 has come from zero to gross sales of Rs 200 crore in the last one-year. We did a private placement in that company last round which has had a benchmark valuation, since it is a structured deal you can’t say it is definite valuation, but it is benchmark valuation of a USD 125 million plus. So that is about Rs 600-650 crore. Both these values are not being captured by shareholders at all. In this country holding companies do suffer a peculiar decline or a discount, I don’t know as and when that will get corrected but value has a way of showing up. Just as you cannot keep a good man down, you cannot keep values down for long. Shareholders will see it. If you just see our results yesterday – Homeshop18 has gone up from a commission income of Rs 2.4 crore to Rs 9 crore – that’s commission income. Remember, that’s about 20% of the gross sales. Therefore, the company had done sales of Rs 40 crore in this quarter for it to give a commission income of Rs 9 crore. One cannot miss these values. It is the first home shop company, Homeshop all over the world is an extremely valuable media property. So sooner than later this value will get seen.
Do also remember that Network18 has grown nearly 100% (?) year-on-year (YoY) revenue growth in this environment. The number that you have got is Rs 220 crore topline which has gone up from Rs 136 crore. But at Rs 220 crore is an understatement because that still consolidates only 33% of Viacom18. It should technically from this quarter onwards start consolidating 50% because 17% couldn't be consolidated pure technicality but you have to consolidate it because it is owned by Network 18. That is another Rs 20-25 crore coming straight into the topline. So Network18 is already a Rs 250 crore company which has grown from Rs 130 crore base last year and they still does not consolidate even a penny on the film company. So it is approaching Zee TV size but has a much more diversified revenue base and in valuation terms it is less than a 10th of Zee TV. So as I said, the market will recognize these valuations. These things sometimes take time but you cannot keep good man down for long and the markets will see that.
Q: Over the next one year though, are there any capex plans that you have laid out routed either through TV18 or Network18?
A: We are very clear that all our business segments are growing robustly. So we would like to focus on existing businesses right now and get them to profitability. Our target is to get every business in the group cash positive by the end of this year or Q1 next year and that is the thing we are focused on. We don’t have any capex plans outside of keeping these businesses chugging along and getting them the cash profitability, all of them. Each and every business segment in the group will be cash positive hopefully by the end of this year or early next year. That is our focus.
This is going to be a dull and boring phase to Network18, we won’t be doing headline grabbing things. We will actually be sitting down and getting these businesses to profitability. So it is like one-day cricket match, we are entering the twentieth over with two wickets down and from twentieth to the fortieth over, we will now build an innings. So we will be pretty boring for the whole year.
Q: So no stadium hit with the print foray just yet?
A: That is a stated intent with our shareholders that we would. That is the only missing piece that we believe we should have. We would like to make that investment but we would like to make that investment properly with a good partner, with a pedigreed brand. So, all those things take a bit of time. If everything can come together, we would like to make that investment. But as I said that investment will be calibrated. As of now that is the only capex plan that we have, there is nothing else until we can get all business segments to cash positive and if you look at the lines, the lines are moving fine. We should be cash positive in all businesses by the end of this year.
