ASSOCIATED BROADCASTING COMPANY PVT LIMITED

Ratings Assigned Facilities/Instruments Long-term Bank Facilities Total Facilities Rating Rationale The rating continues to factor in the experienced management, growth in total income in recent past, reputed client base, launching of new channels in various languages, leading position of some of its channels and revenue from Dish Network (USA) by way of subscription fee. The rating is however constrained by ABCPLs limited track record, regional presence, higher distribution cost, declining trend of operating margin along with strain on profitability in the financial year (FY10) due to recent launch of Hindi news channel, high gearing levels and its presence in the highly-competitive media industry. The ability of the company to maintain the growth rate, improve profitability and adapt to changing taste and preferences of the viewers are the key rating sensitivities. Background Associated Broadcasting Company Pvt Ltd (ABCPL) was promoted by Mr. Ravi Prakash with seed capital from iLabs Venture Capital Fund (IVCF) in 2003. The company started its operations in Hyderabad, Andhra Pradesh with TV9, a 24-hours news channel in Telugu. As on April 4, 2011 the company has added seven more channels in various languages like TV9 Karnataka (News channel in Kannada), Indiavision (News channel in Malayalam), Sanskruti now TV1 (Infotenment channel in Telugu), TV9 Gujarat (Gujarati news channel), Kolkata TV (Bengali news channel), TV9 Mumbai (Hindi News channel) and News9 (News in English language for Karnataka). Operations The transmission of the all the eight channels is done through ABCPL from Hyderabad. The company has outstation centres at different locations including Hyderabad, Mumbai, Bangalore and Ahmadabad equipped with news reporters, camera units, camera-men and camera assistants and dedicated lease line with 24-hour connectivity with the main hub at Hyderabad. All the channels being free to air, ABCPL depends solely on advertisement for its revenue. Maintaining high Television Rating Points (TRP) is essential for achieving higher revenues, as high TRP improves advertisement slot rates and leads to increase in revenue for the company. ABCPL has its presence in various languages viz Telugu, Hindi, Kannada, English (Bangalore), Gujarati and Bengali. As per the TRP rating for February 2011, TV9 Telugu, TV9 Gujarati, TV9 Karnataka and TV9 Mumbai are no. 1 news channels in their respective language and region.News9 is ranked 5th in the English news channel category in Karnataka region, Indiavision (Malayalam) is ranked 3rd and TV1 is ranked 9th in Telugu news channel category. All the channels of ABCPL have been added as part of Dish Network (USA) Indian channel package from second half of FY11 and the same is expected to generate sizeable revenue from FY12 onwards. ABCPL procures its advertisement business through media buying houses viz Results India Communications Pvt Ltd, Madison Communications Pvt Ltd, Lintas Media Group etc. The company has a client base of more than 500 brands including top brands like Nokia, Vodafone, DLF, Tata Indicom, Idea, ICICI, ICICI Prudential etc. Financial Analysis Total Income for ABCPL has registered a growth of around 30% during FY10 as against FY09 levels. The growth was primarily driven by increase in advertising slots (resulting of new channels launched) and advertisement rates (mainly prime time) along with higher spending by corporate on advertisements during FY10 after recovering from the recessionary pressure prevailing in the economy during FY09. The PBILDT level of ABCPL declined during FY10 due to higher production and administration & selling expenses. Resultantly, the PBILDT margin also dropped significantly. ABCPL incurred a net loss of Rs.2.61 crore during FY10 due to substantial y-o-y increase in operating costs coupled with more than two fold increase in capital charges due to increase in working capital borrowing to meet the growing business needs and full year depreciation on gross block added (primarily on account of launch of Hindi news channel in Mumbai) during fag end of FY09 and also on assets added during FY10. Amount (Rs. crore) 29.75 (reduced from Rs.40.37cr) 29.75 Ratings1 CARE BBB- (Triple B Minus) Remarks Re-affirmed

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The interest coverage ratio also declined during FY10 due to dampened profitability during the same period. The overall gearing increased to 3.50x as on March 31, 2010 as against 2.48x as on March 31, 2010 primarily due to increase in unsecured loan from group companies during the same period. Further, there was also incremental working capital borrowing by the company for funding its business requirements. It may be noted that the management of the company has maintained that they are in the process of conversion of the unsecured loan to the tune of Rs.42 crore into equity and without reckoning the unsecured loan from group companies, the overall gearing improves to 0.92x as on the even date. ABCPL generally extends a credit period of 75- 90days to its creditors depending on the value of the contract, accordingly the average collection period as on March 31, 2010 was 86 days. The average collection period is higher due to late payment from Information & Public relation department (Government of Andhra Pradesh) resulting from procedural delays. The creditors for ABCPL are mainly because of lease rentals for dedicated lease lines for connectivity with the main hub at Hyderabad. The average creditors payment decreased during FY10 as the company had paid the creditors earlier so as to reduce the lease rentals through negotiation, thereby reducing the overall production expenses. Resultantly, the operating cycle had increased during the same period. The company achieved a total income of Rs.82.33 crore with PAT of Rs.2.03 crore in 9MFY11. Industry Review The Indian Media and Entertainment (M&E) industry stood at Rs.584 billion in 2010, a growth of 12.4 per cent over the previous year. Over the next five years, the industry is projected to grow at a Compounded Annual Growth Rate (CAGR) of 12.5 per cent to reach the size of Rs.1,052 billion by 2015. The television sector is estimated to have grown at a CAGR of around 13.8 per cent over the period 2008 to 2010. Advertising revenues is one of the main drivers behind the growth of the Indian M&E industry. Over the past three years, it is estimated to have grown at a CAGR of 17.1 per cent. Going forward, the advertising industry is expected to exhibit a lower growth rate owing to the turbulent macroeconomic environment. The advertising revenue is expected to grow at a CAGR of 12.4 per cent over the next five years. Prospects The nature of revenue is volatile with ever changing trends in media industry especially in the general news genres and it is to great extent totally dependent on tastes and preferences of people at a particular time. Though ABPCL has more or less successfully positioned all its channels as regional news channels, but the ability to adapt to changing taste and preference in future will play a vital role in achieving both projected top line and bottom line. Financial Performance For the period ended / as at Mar.31, Working Results Net Sales Total Operating income PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity share capital Networth Total capital employed Key Ratios Growth Growth in Total income (%) 2008 (12m, A) 47.37 47.37 14.39 1.56 3.51 8.49 5.72 10.99 19.65 39.90 60.47 2009 (12m, A) 74.53 74.53 18.21 3.36 5.72 8.05 5.46 12.17 20.78 34.57 107.09 (Rs crore) 2010 (12m, A) 96.82 96.82 14.95 8.10 11.00 (4.06) (2.61) 6.95 20.78 31.38 126.83

180.22

57.32

29.92


For the period ended / as at Mar.31, Growth in PAT (after D.Tax) (%) Profitability PBILDT/Total Op. income (%) PAT (after deferred tax)/ Total income (%) ROCE (%) Solvency Long Term Debt Equity ratio (times) Overall gearing ratio(times) Interest coverage(times) Term debt/Gross cash accruals(years) Liquidity Current ratio(times) Quick ratio(times) Turnover Average collection period (days) Average creditors (days) Operating cycle (days) 2008 (12m, A) 79.67 30.38 12.07 30.93 0.52 0.61 9.22 1.87 1.92 1.92 78 61 17 2009 (12m, A) (4.46) 24.43 7.33 13.56 2.10 2.48 5.42 5.96 1.07 1.07 88 56 32 2010 (12m, A) (147.87) 15.44 (2.70) 3.02 3.04 3.50 1.84 13.74 1.40 1.40 86 29 57

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