Saturday, 05 Oct, 2024
By: Sutanu Guru
Pranoy Roy and NDTV have been in the news in recent times because a company controlled by India’s richest man Gautam Adani looks all set to control a majority stake in NDTV.
The two are as different as chalk and cheese. One is a suave, polished professional analyst and psephologist who carved a formidable media empire in the TV space. The other is a rough speaking, rooted and in your face entrepreneur who carved out a formidable empire spanning both the media and entertainment spaces in television. Both stare at the prospects of losing control of their companies and their carefully nurtured empires. The first one is Pranoy Roy, founder promotor of NDTV. The second one is Subhash Chandra, founder promotor of Zee Network. Pranoy Roy and NDTV have been in the news in recent times because a company controlled by India’s richest man Gautam Adani looks all set to control a majority stake in NDTV. Details of how Adani converted unpaid loans into 29% of equity of NDTV and how an open offer to buy another 26% in the market have already been covered extensively. Slightly more dated are the travails of Subhash Chandra, whose media empire is much larger than NDTV. Lets look at some data to try and find out what resulted in both Dr. Roy and Chandra losing “control”.
If you go by the balance sheet and profit and loss statements of NDTV, you would as an amateur wonder how Pranoy Roy could lose control of such a profitable company. As the accompanying chart shows, net profits of NDTV have consistently improved over the last five years.The year 2017-18 was an unusual one for NDTV as it reported a net loss of more than Rs 60 crores. The same year, the pedigreed media company generated total revenue of about Rs 311 crores. By 2021-22, total revenue had declined to Rs 262 crores. But instead of a loss of Rs 60 crore, NDTV reported a net profit of almost Rs 60 crores; a dramatic turnaround in fortunes by any yardstick. How was this near miracle achieved? Accountants will have a much more detailed analysis to offer. But let’s highlight just one data set responsible for the turnaround.In 2017-18, Employee Benefit Expenses amounted to Rs 129.20 crores. By 2021-22, it had plummeted to Rs 61 crores. In layman’s terms, it could mean that Dr Roy and his management team had successfully and drastically cut costs and were reaping the benefits even though actual revenue also declined. On August 4, 2022, NDTV declared “the best ever quarterly results in the last 14 years” with profits jumping almost 56% to Rs 25.80 crores.
Unfortunately for Dr Pranoy Roy, he couldn’t prolong the celebration of improved performance. A group company of Gautam Adani announced a few days ago that it had converted a loan taken by NDTV in 2009 to equity. Post conversion, the media arm of the Adani group stands to control 29% of the total equity of NDTV. Simultaneously, it announced a public offer to buy another 26% of the equity at a price of Rs 294 per share. The share price is currently around Rs 370; but it was less than Rs 100 one year ago. There has been a lot of debate and controversy about this so called “hostile” takeover of an “independent” media platform. It is not the remit or mandate of India Tracker to wade into that. The question to ask is why did Pranoy Roy and co promoter Radhika Roy need to take a loan close to Rs 400 crores in 2009? Old hands will remember that NDTV had launched ambitious expansion plans and entered the entertainment genre around that time. Facing huge losses, the Roys had abandoned their entertainment foray. The loan was given because the Roys pledged 29% of the equity of NDTV. Since the loan was never repaid, it has been converted into equity. The Roys still control about 32% of the equity. But if Gautam Adani ends up effectively controlling 55%, it will be curtains for the pioneer who once upon a time enthralled Indians with “The World This Week” on Doordarshan. Its all about numbers and data. Unless the Roys manage the cash to buy back NDTV shares, it will be Gautam Adani who will call the shots.
The other, even bigger and more ambitious pioneer Subhash Chandra has gone through the same painful process.If NDTV has been a passion for Pranoy Roy, Zee has been both an audacious labour of love and passion for Subhash Chandra. And it is 20 times bigger than NDTV in terms of revenues if you add up both the media and entertainment genres. But lets just look at the data of Zee Media Corporation which is publicly listed like NDTV. As the second chart shows, Zee Media has been delivered erratic performances over the last five years. In 2017-18, the company registered a net profit of Rs 40.63 crores. But it became loss making the next year and by 2019-20, losses had zoomed to a massive Rs 288.51 crores on revenues of Rs 559.35 crores. The reason: there was an outflow of Rs 325 crores on “Exceptional Items”. Profitability returned the next year and in 2021-22, Zee Media posted a profit of Rs 88 crores. The common sense question is to look at the number Rs 325 crores as exceptional terms and ask: what does this data say? Without gong into intricate details and a deep dive into data, it basically means that Lady Luck had stopped smiling on Subhash Chandra around the time Zee Media reported huge losses. The other listed company dealing with entertainment, Zee Entertainment Enterprises reported a profit of Rs 751.8 crores in 2019-20. But trouble was mounting.
The end result was Zee and Sony agreeing to merge into a single entity signed in late 2021. In July 2022, the stock exchanges gave their approval for the merger. Subhash Chandra would hold 3.9% of the new entity with an option to buy 16% more if he can find the cash somewhere. But cash is proving to be elusive. Even in Zee Media, Chandra effectively controls less than 2% of the equity as the rest has been pledged. In that sense, even though operations of Zee Media are still totally controlled by the Chandra family, they are vulnerable to a “hostile” takeover bid.
In both these cases, the original promotors have lost control over equity because they had to fund their ambitious expansion plans through debt. And when bad times arrived, they became highly vulnerable. But if you look at it from a larger perspective, the two pioneers are not the only “victims”. Sachin Bansal had to sell Flipkart to Walmart and move out. Vijay Sekhar Sharma of PayTM doesn’t control majority of the equity; nor does the promoter of Oyo Ritesh Agarwal. Many analysts have raised questions over this. In the United States, laws allow promoters to issue two classes of shares when they need funds to expand. One class of investor can buy a lot of stock, but will not have control of equity. Promoters can own a special class of shares that gives them enough voting rights to retain majority control over the company. Corporate super stars like Sergey Brin & Larry Page at Google, Mark Zuckerberg at Facebook and Jeff Bezos at Amazon are three examples of how promoters have retained controleven as they have raised billions of dollars to fund expansion plans. The question is: why does India not have similar laws?
Meanwhile, spare a thought for the two pioneers Subhash Chandra and Pranoy Roy.
