Network18 shares fall; analysts upbeat!

Analysts and investors offered sharply contrasting views on Network18 group's restructuring plan as shares of all the group firms tumbled.

Analysts and investors offered sharply contrasting views on Network18 group8217;s restructuring plan as shares of all the group firms tumbled on Thursday even as analysts lauded the move.

Network 18 said on Wednesday it will separate its business into two listed entities,a broadcast company and a digital and publishing unit to simplify ownership and give shareholders an option to mitigate their risk on the group8217;s loss-making units.

8220;We see this restructuring exercise as a positive development. This will simplify the structure,remove cross holding,provide synergy benefits in terms of ads and subscription and will result in 2 focussed entities,8221; Edelweiss Research said in a note.

However,the share-swap ratio announced on Wednesday may have been the reason for the drop in shares,analysts said adding that some investors may be cashing out now that the restructuring uncertainties are over.

8220;The restructuring may generate negative sentiment since the market had been expecting a favourable share swap,8221; said an analyst with a Mumbai-based brokerage who did not want to be identified.

TV18 shareholders will get 68 shares of IBN18 and 13 shares of Network18 for every 100 held while Infomedia18 shareholders will get 14 additional shares of Network18.

The share-swap ratio is at a nearly 4 per cent discount for existing investors of TV18 and neutral to shareholders in other group firms,as per calculation by Reuters based on the closing market price on Wednesday.

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Shares in Television Eighteen,which will cease to exist post the restructuring,have risen by a fifth in the last three months. On Thursday,they fell 12 per cent while another group firm Infomedia18 fell nearly 4 per cent. Network18 shares also fell 2.7 per cent,after opening firm in early trades.

POSITIVE PREDICTIONS

However,analysts expect the loss-making broadcast businesses to recover in FY11,while CEO Raghav Behl said the broadcast company can now focus on raising its distribution revenue.

8220;Revenue growth for TV18 will be driven by recovery in ad spends and contribution from DTH direct-to-home segment. We expect recovery in EBITDA margin in FY11,8221; Sameer Naringrekar,analyst with BNP Paribas,which has a 8216;hold8217; rating on TV18,said in a note.

All four listed Network18 firms had posted losses in FY10 8211; Television Eighteen lost nearly 325 million rupees,IBN18 had a consolidated net loss of about 1 billion,Network18 reported a 1.3 billion rupees loss while Infomedia lost 500 million rupees.

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8220;We see stronger and profitable properties coming into IBN188217;s fold. Post the restructuring,IBN18 would house few of the strongest broadcast properties in their respective genres,8221; added IDFC Securities,which has an 8216;outperformer8217; rating on the IBN18 stock.

The new TV18 aims to raise distribution revenue to about 5 billion rupees from 1.2 billion rupees now over the next two years,Bahl said..

8220;It is an aggressive target but we see a significant move up in distribution revenue in the first 12 months itself,8221; he said.