We recommended TV18 at Rs. 37 with a BUY report named TV18: Colorful Infotainment. Currently, TV18 is trading at Rs. 44, indicating 19% returns so far. Recently, TV18 announced its Q2FY17 results. Here are certain updates regarding the same.

1. Good Growth across Basket Achieved: In FY16, TV18 achieved a phenomenal topline growth of 29% in regional news and approximately 27% in entertainment channels. The effects of this are not seen in the bottom line improvement mainly because of spending on new initiates (as explained ahead).

2. Write downs in FY15 and One-offs in new initiatives in FY16: The lower profits of TV18 for last 3 years can be attributed to the write downs and one-off expenses incurred due to new initiatives in the company. It is important to understand that write downs were related to cleaning of balance sheet whereas one-offs are due to new business initiative taken by TV18.

a. Write-downs: After taking over the control of TV18 from Raghav Bahl, the new management cleaned the balance sheet in FY15. This was done by providing writing off Rs. 233 crores in the form of asset impairments, inventory write-downs, and writing off doubtful debts.

b. Business Oneoffs: Over the last 6-8 quarters, TV18 has launched a series of additional news channels and entertainment channels leading to large upfront costs each quarter. In addition to this, TV18’s subsidiary Viacom18 also launched an online OTT platform which requires significant spending for technology and marketing in the initial period. All these costs are termed as one-offs from new initiatives by TV18. This is especially true as new initiatives can take 6-24 months to break even at the operating level. Over the last 18 months from Q1FY16 to Q2FY17, the company has spent Rs. 217 crores for new initiatives as below:

3. Understanding TV18's P&&L Statement:

a. Change in Accounting Rules Makes Consolidated Revenues Look Much Lower: Until FY16, the revenues of its two JVs (Prism TV JV and Viacom18 JV) were consolidated proportionately to its consolidated revenues. However, due to accounting standards changes, the JV revenues are no more consolidated leading to sharp fall in consolidated revenues. This fall is not a real fall in revenues but just a change in accounting treatment.

b. Prism JV -Journey from 'Subsidiary’ to 'Joint Venture' to 'Merger with Viacom JV': Until July2016, Prism TV was a 50% owned 'subsidiary' of TV18. This led to addition of 100% revenues in consolidated results until Jul2015 (4 months of FY16). Post 1Aug2015, Viacom International acquired other 50% stake of Prism TV thereby making Prism TV a 50% Joint Venture Company from a 50% subsidiary. Due to changes from subsidiary to JV, accounting method changed from 100% revenues consolidation to 50% revenue consolidation for Aug15-Mar16 (8 months of FY16).

Since Apr2016 (FY17), the new accounting standards disallowed the revenues of Joint ventures to be considered for consolidation. Naturally this decreased the consolidated revenues of TV18 optically from Q1FY17. However, this does not have any real impact on absolute profitability as the profits from Joint Venture would have to be put as a single line item on a proportionate basis as a part of "Share from Joint Ventures".

In Q2FY17, TV18 finally took a welcome step to simplify the operating structure by merging Prism TV into Viacom18 and thereby operating all its entertainment (Hindi, English, Kids, Regional) channels into one single entity of Viacom18.

4. Conclusion: Strategically, TV18 has taken all the right steps in creating a stronger foundation by expanding its channel basket in entertainment as well as news channels. It is only a matter of time (12-24 months) wherein its efforts should start paying in the form of better profitability as the company should start seeing most of its channels entering into a mature phase.

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Dhruvesh Sanghvi is a Research Analyst registered with SEBI having registration No: INH000000875.

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DISCLOSURES by RESEARCH ANALYST UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014 is as under:
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• Disclosure with regards to Receipt of Compensation:
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