TV18 to pay top dollar for ETV firms

Panaroma TV makes Rs 5 crore profit in FY11, Prism, Eenadu incur losses

Equator Trading, the holding company which TV18 Broadcast proposes to acquire for a consideration of Rs 1,925 crore, reported a loss of Rs 42 lakh for the year ended March 31, 2011, according to regulatory filings by the broadcaster.

Equator Trading does not have any standalone business of its own — and derives its value from its holdings in three ETV group firms. Equator holds nearly 100 per cent of Panorama Television, 50 per cent in Prism Television and 24.5 per cent in Eenadu Television. Panorama controls the assets of ETV’s Hindi and Urdu channels, Prism holds other non-Telugu regional language channels while Eenadu controls the Telugu channels.

 

Panorama Television reported a net profit of Rs 5.5 crore after reporting losses for preceding four financial years. The company earned a total revenue of Rs 75 crore from ‘sale of services’ in FY11. Telecasting and personnel expenses accounted for bulk of the expenditure at Rs 53 crore. Prism TV and Eenadu TV, in which Equator holds 50 per cent and 25 per cent, respectively, reported accumulated losses of Rs 34 crore and Rs 62 crore, respectively.

BEAMING TRUTHS

* Analysts expect Ebitda of  Rs 200 crore to justify valuation

* Of the Rs 2,700 crore it raised issuing rights, Network18 will use Rs 1,384 crore to subscribe to the rights issue of TV18 Broadcast so as to keep its stake above 50 per cent

* TV18 will use Rs 1,925 crore to complete ETV acquisition, and use Rs 421 crore to repay loans

* Analysts concerned over valuation of companies being acquired due to lack of financial information

* Some say ETV entities must make considerable profits to justify valuation

These numbers have come to the public domain for the first time after Network18 and TV18 filed the offer documents for their rights issues on Friday. According to a three-way deal announced in January, Independent Media Trust, created by Reliance Industries, will fund promoters of Network18 and TV18 to subscribe to rights issues. The companies will in turn use the proceeds of the rights issues to complete the ETV acquisition.

Of the Rs 2,700 crore raised through the rights issue, Network18 will use Rs 1,384 crore to subscribe to the rights issue of TV18 Broadcast so as to keep its stake above 50 per cent. Of the remaining, it will use Rs 1,182 crore to repay loans.

On the other hand, TV18 will use Rs 1,925 crore to complete the ETV acquisition. It will use Rs 421 crore to repay loans in its books, the companies said in their offer documents.

Analysts had expressed concerns over the valuation of the companies being acquired due to lack of financial information. Some analysts had said the ETV entities should make considerable profits to justify the valuation.

Elara Securities analysts had said in January that they believed the acquired business of Eenadu needs to be on track to post Rs 200 crore-plus in Ebitda. This, they said, was “in order to justify the Rs 2,100 crore valuation tag, otherwise the deal makes it tough to justify even the current market price of the company, let alone any upsides”. In absence of any financial information on Eenadu’s acquired business, the analysts said they would refrain from justifying or disapproving the acquisition. “We put the stock under review till the rights issue documents are filed.”

Panorama, Prism and Eenadu were created following a court approved scheme of arrangement in 2010. The demerger is awaiting approvals from ministry of information and broadcasting. “The Demerged Undertakings, as part of Scheme of Arrangement, have taken over intangible assets comprising film and programming content and production support and ‘not to compete’ arrangement with Ushodaya,” the offer document said. Ushodaya Enterprises was the mothership that originally held the undivided ETV assets.

“The above said intangibles were purchased by Ushodaya in the year 2006-07 from Ushakiron Television and Ushakiron Movies (HUF concerns), on a going concern basis. …The Demerged Undertakings have recorded such assets in their books as intangible assets and are continuing to amortize the same over a period of 10 years for its remaining useful life,” the offer document said. The statutory auditor, it added, had qualified the auditor’s report with observations with regard to the valuation of these intangible assets.

At present, the film and programming content is amortised over 10 years and other intangible assets are amortised over a period of five years, the auditors said. “The film and programming content and other intangibles have not been tested for impairment and the quantification of the future economic benefit to be derived from their use has also not been determined and accordingly we are unable to comment on the aggregated carrying value of such intangibles,” they added.

Panorama had put “carrying value” these intangibles in its balance sheet at Rs 9 crore, while Prism and Eenadu had valued their share of the intangibles at Rs 201 crore and Rs 385 crore, respectively, as on March 31, 2011.