For the last couple of days, New Delhi Television Ltd (NS:) and Adani Enterprises Ltd. (NS:) (AEL) has been in news for the so-called hostile takeover carried out by the latter.
AMG Media Networks, a subsidiary of the Adani (NS:) Group, along with Vishvapradhan Commercial will make an open offer for 1.62 crore shares, that is, a 26% stake of NDTV at Rs. 294 per share. The total cost of this acquisition would be Rs. 483 crores.
While this is an interesting development that has caught everybody’s eyeballs, one must understand that the takeover of NDTV has connections that date back to 2009.
How and what exactly happened?
The promoter of NDTV, RRPR holding (Radhika Roy Prannoy Roy) borrowed Rs. 400 crores as a loan from Vishvapradhan Commercial in the year 2009. This amount was borrowed to repay an existing loan taken from ICICI Bank (NS:).
Vishvapradhan, in return, got a lot of warrants of RRPR holdings and they had the option to convert these warrants into shares. These warrants once converted would give Vishvapradhan stakes of 99.5% of RRPR holding. RRPR holds a 29% stake in NDTV, thus, after converting these warrants into shares, VCPL would in effect own 29% of NDTV.
The Adani group announced the purchase of a 29% stake of NDTV from Vishvapradhan Commercial (earlier linked to Mukesh Ambani).
But why did NDTV allow these warrants to get converted into shares? Simple, NDTV never repaid the loan taken and this led to VCPL converting the warrants. The Adani Group had to first acquire VCPL. This acquisition took place after the divestment of VCPL by Reliance (NS:) to Eminent Networks Pvt Ltd. and Nextwave Televentures Pvt. Ltd. The Adani group eventually purchased VCPL from these two entities at Rs. 113.74 crores.
The story doesn’t end here. The Adani Group along with VCPL have further made their intentions clear to buy a 26% additional stake of NDTV, and this would lead to a control of more than 55% of NDTV. Also, LTS Investments, a Foreign Institutional Investor (FII) holds more than a 9% stake in NDTV. The interesting part is – out of the total investments of LTS in India, 98% of those are in Adani group companies.
This deal has certainly aroused the interest of market participants and it will be interesting to watch this space. However, this acquisition is subject to the approval of the regulator, that is, SEBI.
With this so-called hostile takeover of NDTV, Gautam Adani, the 4th richest man on this planet will join the league of the Murdoch Family which owns famous news agencies such as Fox News, The Wall Street Journal; and Jeff Bezos who owns the Washington Post.
How did the stock react to the announcement?
This development has brought media stocks into focus. Team Tavaga will be analyzing one listed entity for the benefit of our readers.
TV Today Network Ltd.
With a market capitalization of Rs. 1,739 crores, TV Today probably is one of the few media stocks which has stayed away from all the M&A deals. TV Today is well-known for broadcasting Aaj Tak and Tez in the Hindi news channel segment and India Today in English. Not known to many, TV Today Network also runs the famous Ishq 104.8 FM. The entire news-media fraternity is dependent on advertisement revenue and the same is the case with TV Today Network.
TV Today-owned Aaj Tak is the most successful venture (leader for the last 20 years) of the group with a market share of 18%.
Coming to the financials of TV Today Network Ltd., the stock reported a topline growth of a mere 7% YoY in the Q1 of FY23 of Rs. 218 crores. The operating margins of the company improved by 10% QoQ, still below the levels seen in June 2021 (26%).
The PAT, however, grew by more than 35% for the year ending March 2022 with cash flow from operations struggling to grow at a consistent rate since FY19.
Key triggers for the company:
1. As the company majorly derives its revenue from advertisements, the upcoming state assembly elections in Gujarat, Madhya Pradesh, Rajasthan, and Karnataka will provide the company with a booster dose
2. With BARC ratings now resumed, the viewership scorecard of the company will be in focus
Coming to the valuations front, the stock looks quite attractive on a TTM P/E basis. The stock trades at a TTM P/E of 9.0 and a PEG ratio of 0.71. However, market participants chase a stock that shows top-line growth consistently. But TV Today hasn’t managed to grow consistently on any front (Neither PAT nor sales). Even the cash flows as suggested above haven’t shown steady growth in the past.
With the news of the takeover of NDTV, the stock jumped 10% on 24th August to finally close at Rs. 291.
While this news tells us about the exciting times ahead in the sector, it is important to know that the competition is only going to increase with big players entering.
Therefore, team Tavaga strongly recommends its readers to consider taking advice from a SEBI Registered Investment Advisor before taking any position in the stock. It won’t be wrong to conclude that media stocks have shown cyclical characteristics in the past and may continue to do so.
Disclaimer: This is not a stock recommendation. Views are explained only for education purposes.
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