Global Broadcast News (GBN), broadcaster of the CNN IBN and IBN7 channels, is raising Rs 105 crore from its initial public offer and offers a new investment alternative in the television broadcasting space. Investors can, however, give the offer a miss for now. At Rs 250 — the upper end of the price band — the company will have a market capitalisation of about Rs 650 crore, more than 10 times its likely FY-07 revenues.
The valuation is at a significant premium to that of the market leader — NDTV. While the English news channel, CNN IBN, has managed to make a strong impact in a short period, and emerged as a strong contender in this genre, we are less optimistic about the prospects of its Hindi news channel, IBN 7 (formerly Channel 7), given the significant competition in that space. Over the medium term, in our view, the stocks of NDTV and Television Eighteen are likely to offer superior exposures in news broadcasting. Our recommendation does not factor in gains upon listing. The offer is likely to attract investor interest, given the bright industry prospects and the strong promoter backing and brand presence the company enjoys. However, conservative investors can consider picking up the stock once clarity emerges on the prospects of its Hindi news channel.
A strong show
GBN is part of the TV18 group that operates business channels CNBC TV18 and Awaaz (Hindi business channel) and a clutch of web portals. CNN IBN, the company's English general news channel, was launched in December 2005.
In a little over a year since its launch, it has managed to make a strong mark for itself. Its brand licensing and news services agreement with CNN and Turner appears to have helped it capture viewer attention.
The channel scores high in terms of news coverage, presentation style and quality of news and offers some serious competition to NDTV 24x7, which has been the leading news channel since its launch in 2003.
Going by TAM Viewership data, the channel appears to be neck-to-neck with the latter in terms of market share. We believe that the English news channel space can accommodate two prominent players and that NDTV 24x7 and CNN IBN will be the dominant channels for some time to come. In this context, the channel's decision to turn pay from free-to-air also augurs well, as it offers an additional stream of revenue by way of subscription.
But the contribution from subscription will be significant only if the conditional access system (CAS) takes off and investors consciously opt for new digital platforms.
IBN7, a weak link
In keeping with the trend of having a presence in the Hindi and regional news space, GBN recently acquired a 49 per cent stake in BK Fincap, the holding company of Jagran TV, owner of Channel 7. The Hindi news channel has been re-christened IBN 7. A chunk of the proceeds (Rs 46 crore) will be used to partly fund the acquisition cost of Rs 68 crore and infuse a loan of Rs 11.50 crore in the company.
Unlike NDTV, which has a strong contributor to revenues in NDTV India, GBN has a comparatively weaker link in IBN 7. With a market share of about 10 per cent, it will be a long haul for IBN 7 before it attains its objective of being the No.1 Hindi news channel.
Hindi news is a growing genre but is getting overcrowded with Aaj Tak, STAR News, NDTV India and Zee News all clamouring for the top slot. With a strong competitor in NDTV India at No. 3, we believe that it will be a tough fight to secure a slot in the top three.
Valuation and outlook
On a relative valuation basis, GBN is at a premium over NDTV that does not appear fully justified.
The latter has a business channel in its fold and is equally, if not better, placed to capitalise on the growth opportunities afforded by this space.
We can expect GBN to record strong revenue growth on the back of new subscription revenue and growing advertising income as CNN IBN attracts more advertisers in its second year of operation.
However, it is unlikely to repeat NDTV's spectacular financial performance in the year after its listing, which was at a time when the race for advertising revenues was virtually uncontested.
GBN will now have to compete with NDTV for advertiser's attention, with channels such as Times Now and Headlines Today also in the game. Even if GBN turns in a performance that is comparable to NDTV in its year of listing, the pricing of the GBN offer leaves little on the table for investors.
GBN is yet to make profits at an operational level. In the first half of FY-07, it recorded revenues of Rs 25 crore but incurred losses of an equal amount.
At this point, with investments also being directed towards IBN7, we do not expect the company to launch any new channels that could offer a fresh source of revenues, in the near-term.
Offer details: About 40 lakh shares are on offer to the public. The price band is Rs 230-250. About half the proceeds will help fund the acquisition of Channel 7 owner, Jagran TV; Rs 25 crore will be used to repay a loan from ICICI Bank and the balance Rs 35 crore will meet issue expenses and be used for general corporate purposes.
The offer opens on January 15 and closes on January 18. The lead managers are ICICI Securities and Kotak Mahindra Capital.