By Karan Taurani @ Elara Capital

Broad-based profitable growth

Revenue growth –Strong digital performance

TV Today Network’s (TVTN) Q3 revenues grew 15.4% YoY (up 16% versus pre-COVID levels and 14.2% QoQ) to INR 2,580mn (Elara E: INR 2,498mn), better than estimated. This was largely led by healthy performance in the digital segment (contributes 21% to revenues); TV broadcasting segment (contributes 77% to revenues) grew 6% YoY to INR 1,978mn. Overall, Q3 EBITDA margin declined 140bps YoY to 33.2% (up 690bps QoQ), mainly on account of production expenses that rose 38% YoY, resulting in a margin decline. Q3 PAT rose 12% YoY to INR 615mn (up 64% versus pre-COVID levels and 31% QoQ), led by strong revenue growth. Depreciation and interest expenses were largely stable.

Compelling digital proposition to drive growth

We estimate TVTN to post FY21-24E revenue CAGR of 15% in the TV segment given: 1) market leadership in the Hindi news genre, 2) news genre being the least impacted by digital ingress due to live content and 3) little/no negative impact of NTO 2.0 given strong recall. The Digital segment is the silver lining, with its revenue contribution seemingly spiking 450bps in the next two years to 24% through to FY24E (29% revenue CAGR). This may be led by: 1) a platform-agnostic approach, 2) broad-based growth in own app, YouTube and social media and 3) increased penetration and consumption-led growth for video content in India. The digital segment remains highly profitable with ~25% EBIT margin due to the platform-agnostic approach and better segmental growth. This should aid overall profitability. Also, TVTN enjoys a healthy cash balance of ~INR 7.5bn, which may be used for higher dividend pay-out/acquisition. Also, there is potential for sharp growth in FY25, led by general elections (which leads to ~5-6% higher growth).

Valuations: Reiterate BUY; TP raised to INR 610

We largely retain estimates, and value TVTN on SOTP, assigning a P/E of 10x one-year forward to the broadcasting segment, factoring in converging growth of traditional media and highly fragmented news segment. We assign a market cap/sales multiple of 4x one-year forward to the digital business propelled by: 1) scale (24% revenue contribution, much higher than other broadcasters) and 2) a platform-agnostic approach that caps content costs and drives profitable growth. Our SOTP March 2023E TP is raised to INR 610 (from INR 400 based on 10x P/E for TV broadcasting and 4x MCAP/sales for digital segment, after factoring in healthy cash in hand – Maintain BUY