As Adani vies for majority, NDTV becomes priciest electronic media stock

Trading at P/E multiple of 28.5x - nearly 50% higher than industry average of 18.6x

The takeover battle for New Delhi Television (NDTV) has led to a sharp rise in the company’s stock price and valuation. NDTV is now trading at a valuation premium compared to its industry peers and is now the fourth-most valuable electronic media group in terms of market capitalisation (m-cap).

At its current stock price, the company has an m-cap of Rs 2,479 crore and is trading at a trailing price-to-earnings (P/E) multiple of 28.5x — nearly 50 per cent higher than the industry average P/E multiple of 18.6x.

In the past, NDTV used to trade at a discount-to-industry valuation. For example, NDTV was trading at a trailing P/E multiple of 14.2x at the end of December last year, compared with the industry average earnings multiple of 19.9x.

The data hints at a derating or decline in the valuation of electronic media companies and television (TV) broadcasters in recent years.

NDTV has seen a rerating of its stock, leading to a steady rise in its earnings multiple in the past 12 months.

For example, NDTV’s trailing P/E multiple has more than doubled during the year so far, from 14.2x at the end of December last year to 28.5x currently.

The analysis is based on the quarterly finances and m-cap of top 10 electronic media giants — Zee Entertainment Enterprises (ZEEL), Sun TV Network, Network18 Media, TV18 Broadcasting, NDTV, TV Today Network, MPS, Zee Media, Music Broadcast, and Entertainment Network.

Analysts attribute the derating of media stocks to a rise in competition with the launch of multiple TV channels and internet-based video streaming services or over-the-top platforms. This has led to a fragmentation of advertising revenue, resulting in poor revenue and earnings growth in the industry.

“In the past, most media stocks used to trade at a premium-to-valuation multiple of benchmark indices, but now most media stocks are trading at a discount-to-valuation in the broader market. Things are not likely to change until the industry begins showing quicker revenue and earnings growth,” says Chokkalingam G, founder, Equinomics Research & Advisory.

A rise in competition has led to poor revenue and earnings growth in the industry. The country’s 10 biggest electronic media companies and TV broadcasters reported a combined net sales of Rs 6,462.3 crore in the April-June quarter — up 15.4 per cent year-on-year (YoY) — but the number was lowest in the past three quarters. By comparison, the industry’s combined net profit at Rs 704 crore in the first quarter (Q1) of 2022-23 (FY23) was down 1 per cent YoY and the lowest in seven quarters.

The rerating of the NDTV stock price and its valuation is largely attributed to a tactical opportunity provided by the takeover battle for the company and the open offer for the stock by Adani Group.

Additionally, NDTV has reported a relatively superior revenue and earnings growth in recent quarters, compared to its peers.

The company’s consolidated net sales were up 26.7 per cent YoY in Q1FY23, while its net profit was up 45.3 per cent YoY in the quarters — among the best in the industry. As a result, NDTV has reported a faster earnings growth than its peers in recent quarters.

Analysts, however, say while NDTV is one of the most recognisable brands in news dissemination, the company revenues and profits are still a fraction of industry biggies like Sun TV Group, ZEEL, and TV18 Group.

NDTV accounted for less than 2 per cent of industry revenues and profits in Q1FY23.