* As reported in Business Standard.

Workings:

Ø       Post de-merger TV 18 will derive revenues from the CNBC TV 18 and the Awaaz.

The expected revenue from these two channels in Fy 08 works out to Rs 265 crores I have taken it at Rs 240 crores after accounting for about 10% on account of contingencies etc CNBC TV 18 has been growing in excess of 45% over the last few years but I have tried to be conservative in the estimates.

Ø       The Net profit margin is assumed to be maintained at 30%. Normally with broadcasting companies any increase in sales add more to the profits because the fixed costs salaries of anchors etc remain the same.

Ø       EPS is Net profit/ No. of shares = Rs 123 crores/5.24 crores = Rs 23.52 per share.

Ø       The Internet subsidiary Web 18 would be held 85% by TV 18. In FY 08 Web 18 should do a net profit of Rs 60 crores. See section below. 85% of Rs 60 crores = Rs 51 crores

Ø       TV 18 has consistently maintained an RoE of more then 30% but we would take a PE of 20 to be on the conservative side..

Ø       Market price = EPS x PE = Rs 470 (23.52 x 20)

Ø       Market Capitalization is equal to number of shares x Market price = Rs 470 x 5.24 crores= Rs 2444 crores.

We now analyze the financials of Network 18 after the split:

Workings:

Ø       Total net profit would consist of the proportionate profits from TV 18 and GBN.

Ø       EPS is Net profit/ No. of shares = Rs 83 crores/Rs 5 crores = Rs 16.60 per share.

Ø       Assuming a PE of 20 times the stock would sell at Rs 332 (Rs 16.60 x 20).

Ø       Market Capitalization equals Market price x No. of shares = Rs 332 x 5 crores = Rs 1660 crores.

I have assumed the internet business to grow multifold. A look at the revenues from Moneycontrol (see exhibit 6) indicates that it can grow at that speed.

The growth: The growth from internet revenues has been taken at over 5 times in Fy 07 and only 2.4 times in Fy 08. Haresh Chawla (CEO TV 18) expects it to grow 6 times in the current year and for the year after that he has not committed but the growth could be as strong a 3 times. In that case Revenues from internet ventures should cross Rs 200 crores in Fy 2008.

Note: The net profit percentage should be far higher (see exhibit 6) where growth in net sales is far less then the growth in net profits. I have been again conservative so that we may err on the side of caution. In broadcasting and internet companies majority of the costs are fixed and any increase in revenues adds directly to the bottom-line.

Broadband penetration is happening at 100% y-o-y and with the new internet properties lined up the growth could be even stronger. By 2010 the total broadband users are expected too rise by 15 times from the present level. In another two years the Internet ventures of the company could see revenues from the following areas:

Out of these only money control and power your trade seem to have reached traction and revenues from the others will start to kick in over the next few months.

A look at the financials of e-eighteen for the relevant period shows the kind of growth moneycontrol and Poweryourtrade have been able to achieve.

Conclusion: Once the restructuring happens the consolidated value of TV 18 should move up to Rs 1056 implying again of 74.07%. I have not assumed the

n        Value of the 20+% stake of TV 18 in GBN.

n        I have not built in any positives from the roll out of CAS and DTH where pricing after the initial period of one year should become market driven.

n        I have also not taken the value of GBN’s  15% holding in web 18 which TV 18 and network 18 indirectly benefit out of such holding.

There could be many changes from the above lying assumptions and I have assumed that they would neutralize each other. For instance lower sales could be offset by higher margins and so on and so forth. This is because I have been conservative in my estimates.

Haresh Chawla in an interview to Business Standard recently said “I believe that the entire industry is headed for a re-rating of its business model. I expect that in the next 3-4 years we will garner anywhere between 30-35 per cent of overall top line from subscription revenues (in absolute terms it may go up by 4-5 times), about 50 per cent from advertising and the balance from the Web services business.

Recommendation: Readers may treat this calculation as an academic exercise because companies in a spin off mode rework a lot of strategies so any change would affect the price but otherwise I feel that this target of Rs 1056 should easily be achieved over the next year in case these assumptions are met..