Network18 is recasting its broadcasting business to lower its cost base. The company will merge the logistics, backend and broadcasting operations of its two business channels, the flagship CNBC TV18 and the Hindi business news channel CNBC Awaaz. Both channels are 10 years and 5 years old respectively.
The restructuring comes on the heel of its recent Rs 510 crore rights issue, in which the company committed to its shareholders, to reduce its debt by about Rs 300 crore. The current move will lead to a 20% savings in operational costs, or Rs 65 crore, according to a company statement. Haresh Chawla, group CEO of Network 18 said that the next stage of growth and profitability will come from a more synergistic business structure.
The combined operations will have 8 business bureaus and two broadcast hubs; will deliver on cost reductions, with about a 12% reduction in permanent employees. There will be a restructuring charge in the current quarter, according to the company, and the savings will reflect from the next quarter onwards. Based on the Rs 65 crore cost savings figure, the company should roughly benefit to the extent of Rs 16 crore per quarter on a pre-tax basis. The company had issued shares in its rights issue at Rs 84 a share while the current price is about Rs 79.
In the September 2009 quarter, Network 18’s consolidated revenues declined by 5% over the corresponding previous period, but were up 16% on a sequential basis. Its business news channels contributed to nearly half of sales, but revenues were down by nearly 20% over a year ago but were up by 14% over June 2009. Though operating profit margin was 16%, interests costs are too high, with net interest at Rs 25.3 crore compared to its operating profit of Rs 10.04 crore. The business news operations incurred a net loss of Rs 33 crore, and an Rs 16 crore savings in costs would be welcome. Plus if the surplus cash can lead to lowering of debt in the long run, interest costs would pinch less too.
Of course, depreciation and paying CNBC its share of revenues too are partly responsible. But these costs are outside the company’s control. That’s why Network18 is merging the operations of both channels, they will present two different faces to the world, but the processes will get merged. It is an ambitious effort and its success and projected cost benefits will soothe investors.