Did you ever wonder why millions of Indians watch the CNBC TV 18 channel all day long while their wives and children fret and fume for not being able to watch their favorite soap operas on other channels of mass entertainment. Well as a popular punch line of a leading financial website goes - It's all about money honey!

TV-18 through a 90% ownership in the broadcasting channel CNBC TV-18 is the monopoly player in the financial and business-broadcasting segment of the Indian Cable & Television Industry. Over the years the CNBC TV 18 channel has developed a niche for its content and posses a strong customer loyalty. CNBC (Asia Pacific) holds the other 10% strategic stake in TV18 's unlisted channel broadcasting subsidiary. The channel is distributed through the ZEE Turner bouquet of channels.

Earlier TV- 18 used to work as a content supplier to the channel CNBC at pre determined revenues of cost plus 33%. The lack of scalability in that model discouraged the market from giving higher earnings multiple to this stock and it fell out of favour. The recent developments transferring ownership and control of the channel to TV 18 has been very positive. The present valuations indicate that the stock is not only cheap on market capitalization basis but also the scope for growth appears robust especially when viewed in the near monopoly positioning of the channel in the business news-broadcasting segment.

It is estimated that around 192 million urban and rural households have access to television sets that makes it the most powerful medium for advertisement and entertainment .It has been further researched that Television commands a 72% share of the average 13 hours spent on traditional media by Indians. The number of homes with Cable & Satellite access has jumped from 29 million homes in 1999 to 40 million homes in 2002; a 31% compounded annual growth during the last two years.

A growing GDP will lead to higher savings and hence a greater propensity to invest. Till now a greater proportion of the Indian savings was in the form of precious metals (Gold & Silver). This attitude would tend to diminish in the present context of rising Gold prices. The lowering rate of interest on savings and loan deposits does not help either and Indians would be forced to look upon the equity markets as an avenue of investment. The time has come for changing the definition of the Capital Markets from a Gambling den to a more serious and mature Investment Place.

TV 18 will retain the first mover advantage in the business news segment. It has a 15-year franchise for the `CNBC' brand on a revenue sharing basis. The advertisement inventory is guaranteed a buy back to the extent of 6 hours a day on the International Programming segment. These advertisements would utilize the non-prime time slots of the channel as the US and South East Asian markets are separated by time zones when compared to the Indian Markets.

A look at the financial statements of the Company reflects that the cost incurred is more or less of a fixed nature and once the Company achieves critical mass the net additional flow to revenue translates itself into the bottom line. For the 3-month ended December 2004 quarter the Company reflects a very high operating margin at around 45% and the management appears confident of posting operating margins north of 30% on a secular basis.

Content as they say is king and what better way to operating a Broadcasting Channel with almost assured free content. The programme structure is based upon a minute-to-minute analysis of the Indian Capital Markets. Market analysts from various parts of the country and abroad are called up for opinion on the stock market. These opinions are expressed without remuneration and the Company gets free content while analysts enjoy free publicity. This compares very favorably with other mass entertainment channels like STAR and SONY where content suppliers ( Balaji Telefilms etc) ask for rate revision at regular intervals at the slightest increase in viewer ships.

After changing the mode of distribution from the Sony One Alliance to the Zee Turner bouquet of channels the subscription revenue have shown a phenomenal increase and the Company expects this number to increase from Rs 146 million in 2002 -03 to RS 540 million by 2005 -06.Present trend of viewership increases indicates that this number could be reached far before the slated period.

The channel also caters to the affluent sections of the society hence the quality of viewership in terms of disposable Income and spending habits also remains high.

Many would dismiss the channel as a stock market commentator and very prone to viewership and advertisement revenue loss if the Stock market is to fall. This fear although existent is not prevalent. A closer look at the programming content states that the Variety of shows extend from Bazaar, Your Stocks and Business Lunch to Lessons in Excellence Trendmill, Story Board, India business hour Good Life & The Auto Show. It is obvious that the content of these shows cover various facets of information ranging from Stocks Markets & Investments queries to health, advertising, Auto and Management. The viewership pattern is also spread across the various segments of the Society and not localized to the Stock Markets alone.

The viewers that watch this channel command a higher disposal income and belong to the affluent strata of the Indian Society.

The pay TV format or Conditional Access System (CAS) as it is commonly known in India will set this Company in for a large re-rating. The Management feels that the present distribution system allows it to receive around Rs 10 million from its subscription revenue. Zee has given in a built in minimum guarantee for an equivalent amount to TV 18. A monthly revenue of Rs 10 million implies a notional paid viewership of 1 million at around Rs 8 to 10 per subscriber.

The Company contends that there are around 30 million investors in India that is 3% of India's population. Taking an average number of 4 viewers per TV the total number of investor household comes to around 7.5 million. Even if half of these were to opt for the CNBC channel then the total number of subscribers to3.75 million would quadruple once CAS is implemented.

Commercial forces would make the roll out of CAS inevitable. Over 30 countries in the world have this system of cable distribution also known as addressibility. Although DTH is a possibility the Company will benefit tremendously through DTH also as it opens up new avenues for expansion. Market sources opine that the Company contemplates opening up a Gujarati channel and a couple of other channels once CAS is implemented.

The market capitalization and Price to Earnings Ratio of TV 18 compares very favorably with its peers listed on the bourses. While looking at the financials readers are advised to look at the consolidated numbers of the Company as it has a chain of subsidiaries and hence looking at TV 18 numbers in isolation may not lead to a correct opinion on the stock

*On the basis of placement made to ICICI last year.

**On the basis of the annualized EPS for the December 2003 quarter

The RONW at 16% is also quite satisfactory. The Company has consistently increased the number of advertisers from around 20 to over 100 in the past eight quarters. A diversified category of advertisers will reduce dependence and add to the robustness of the business model. The present year will see spate of IPOs including GAIL , ONGC , TCS and a number of disinvestments by the Government the preferred channel for advertisements will be CNBC TV 18 due to its near monopoly status in the business news broadcasting segment.

Recently the Company made a preferential allotment of shares to the promoters. The promoters had earlier sold around 10 lac shares to Reliance Mutual Fund in a market deal executed in October 2003 at a price of Rs 150.The extent of commitment made by Reliance mutual fund which also features as one of the top rated mutual funds of the country inspires confidence

Work at the 30,000 square feet Worli Studio is being carried out in full scale and a Hindi business channel is on the anvil. At the current price of Rs 205 the stock discounts its December 03, EPS (annualized) of Rs 14.5 by around 14 times and appears attractive when compared to its peers. Also with profits set to grow in robust double-digit numbers the stock appears very cheap when viewed at FY 05 earnings

Sources: TAM Research date and TV 18 website.

Basant Maheshwari is a Cost Accountant and a Post Graduate Diploma in Equity Research and Analysis from ICFAI (Hyderabad) and has long positions in this stock and recommends long term investors to buy at present levels and use declines as an opportunity to increase holdings. Although the stock appears attractive, the basis of assumptions on which this report is prepared may or may not happen As always readers are expected to consult their financial advisors and exercise their own judgment in deciding whether to buy or sell this stock. Comments are invited from readers and analysts at & .