Fitch downgrades TV18

MUMBAI: Credit ratings agency Fitch has downgraded TV18, raising concerns over the company's financial profile over the nine-month period of the current fiscal and deployment of large cash balances to support subsidiaries and group companies.

TV18's operating loss in FY'09 on a consolidated basis has been primarily due to the significant launch expenses and development costs of Web 18, and to some extent due to expenses related to its print media businesses including one time charges.

Also disturbing is the pressure on profitability on TV18's core news operations business due to a significant slowdown in the renewal of advertising contracts.

"The company has utilised a substantial portion of its liquid balances (around Rs 6.76 billion as of FY'08 and Rs 2.6 billion as of 9-month period of FY'09) in investments in group companies, primarily in Infomedia18 and direct investments into other group companies," Fitch said.

Fitch has downgraded the rating to 'BBB' from 'A.' It has also lowered its rating outlook to negative from stable.

Fitch ratings on the following instruments

Rs 1.25 billion long-term loan - Downgraded to BBB (from A)

Rs 670.1 million term-loan - Downgraded to BBB (from A)

Rs 850 million fund-based working capital limits - Downgraded to BBB/F2 (from A/F1)

Rs 70 million non fund-based working capital limits - Downgraded to F2 (from F1)

Rs 250 million commercial paper/short-term debt programme - Downgraded to F2 (from F1)

TV18 has raised fresh debt to meet the increased requirement of working capital and support its investments. "Net debt levels increased substantially to Rs 6.6 billion at the 9-month period of FY'09 compared to negative net debt levels at FY'08," Fitch said.

On the positive note, however, is the possible gain of advertising revenues from the upcoming elections and the budget coverage after the new government is formed.

"TV18 has also been actively undertaking cost cutting measures across its businesses, which along with the one-time nature of some of Web18's losses due to initial launch expenses and charging off development costs, could help stem operating losses. In addition, TV18 has put on hold its earlier investment/expansion plans into new businesses such as print media, which could reduce the extent of negative free cash flows to be funded through FY'10," Fitch said.

"Realisation of benefits from the company's ongoing operational initiatives, coupled with a revival in advertising revenues materially benefiting credit metrics could lead to the outlook being revised back to stable, as could material reductions in net debt levels through equity infusions and/or monetisation of equity stakes in subsidiaries/group companies," the ratings agency added.

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