Stock Idea - Network 18 Fincap

Recommendation: Buy

CMP = Rs 411

Price target: Rs 651

Key points:

·          After the transfer of Studio18’s business to Viacom18, Network18 has filed the amended draft offer document for its rights issue. The old draft document stated the earlier objects of the issue to raise a part of the funds for film projects under Studio18. I maintain my valuation of the right issue at Rs 133.6 per share.

·          Network18 proposes to use a part of the rights issue proceeds towards capex on television content production. We believe, the investment in content production business will cater to the content requirements of the forthcoming channels of Viacom18.

·          HomeShop18 is going great guns with business spreading over 2000 towns & cities across India, and with average sales of approximately 20 lakh per day just a few months after its launch. A full-fledged home shopping channel is in the offing.

·          Issue of preferential warrants in TV18 and GBN will lead to increase in Network18’s holding in TV18 to 53.3% and in GBN to 45.1%.

·          I maintain Buy recommendation on the stock with price target of Rs 651.