>NEW DELHI TELEVISION LIMITED (FIRST GLOBAL)

Likely implementation of CAS in remaining parts of three metros & 55 cities by 2009 to be next big positive trigger…

Increase in viewership of business and general news channels to drive advertisement revenues higher…

The Story....

New Delhi Television Ltd. (NDTV) [NDTV.IN/NDTV.BO] is on the transformation path to become a full media conglomerate with interests in television, Internet, radio, mobile content and allied businesses. NDTV is India's first and largest private producer of news, current affairs and entertainment television and is well diversified in different genres of media like general news, business news, General Entertainment Channels (GEC), lifestyle and infotainment. The company has a track record of successfully launching three news channels - NDTV 24x7, a clear leader in the English news segment, NDTV Profit, a 24-hour business plus channel, and NDTV India, which is among the country's leading Hindi news channels. However, NDTV’s financial performance has failed to match its strong business performance. Over the last four years, NDTV’s standalone revenues have grown at a CAGR of 19.3% from Rs.1.5 bn in FY05 to Rs.3.1 bn in FY09, though the company reported a standalone proforma net loss of Rs.732 mn in FY09, as against a standalone proforma net profit of Rs.292 mn in FY05. The decline in the company’s profitability was primarily due to start up costs incurred towards NDTV Profit in FY05-07, as well as weak revenue growth and higher operational cost in FY09, on account of the economic downturn. In FY09, the company posted a consolidated proforma net loss of Rs.5.0 bn, mainly due to launching of five broadcasting properties, including NDTV Imagine, which entails heavy investment in the initial years in the form of operating cost.

Going forward, we expect NDTV to create significant shareholder value, as it has decided to
restructure the company by de-merging its news-related businesses, which is its core strength, into a separate entity. The implementation of CAS in the remaining parts of the three metros and 55 other cities, which is likely by 2009, will be the next big positive trigger for the company as well as the stock, as there will be a decline in under reporting of subscribers, which will lead to an increase in the subscriber base and, consequently revenues. Also, the current uptrend in the stock market, post the elections, coupled with continuous monitoring of the new government’s policy initiatives, will generate significant news content. This will result in viewers returning to the company’s business and general news channels, thereby attracting advertisers, which will lead to higher advertisement revenues. However, in order to fund its mounting accumulated losses, NDTV could resort to equity dilution, thus impacting its return on equity, or take up debt financing, thereby further affecting the company’s profitability, which is a cause for concern to us. On the valuation front, the stock currently trades at an EV/EBIDTA of 43.0x our FY10 estimates. While the stock valuation is expensive, we believe that the company’s success in delivering a strong business performance will help strengthen its financial position significantly over the longer term, apart from being an acquisition candidate. Moreover, our estimate of sum of the parts valuation for the stock is Rs.175. We initiate coverage on NDTV with a rating of
‘Market Perform with Outperform Bias’.

To see full report: NDTV