Abstract
In 2011, Samjad, deputy CEO of Maledia Broadcasting Limited (MBL)—a new venture of the media group Maledia, based in Cochin, India—prepared to make financial projections to justify the feasibility of the new Malayalam news channel. He was faced with challenges of making estimates that made the project attractive yet practical and credible for the group that was conservative in their advertising sales approach.
Set in an interesting industry like broadcasting, the case simulates a real-life situation that also provides a internal corporate context. With the help of the rich market data such as advertising spends, commercial time, competitive scenario in the region, students are expected to forecast revenue for the project. Students are also challenged to use benchmark data of competitors to estimate hurdle rate, capex and operating costs. Estimation of initial investments is also required to be made. Using the processed financial data and projections, students are required to prepare discounted cash flows (DCF) statements with net present value (NPV) and internal rate of return (IRR) for the broadcast channel project. They learn to build alternate scenarios to deal with decisions under uncertainty.
The case provides several opportunities to discuss narratives and numbers, helping students of finance realize the value of analysing the company policies and values, business situation, market environment and competitive financial information in capital budgeting, and project finance beyond number crunching.
Keywords
Discussion Questions
Based on the broadcast market data—particularly advertising spends, how would you estimate projected revenues for MBL? How do you find Samjad’s estimate of ₹100mn as revenue in the first year?
Following Samjad’s approach to estimating initial investments, revenue and costs, construct a statement of 6 years’ financial projections for MBL.
Prepare the financial appraisal of the project based on the data available. Calculate the hurdle rate, NPV, IRR and payback period, and comment on the feasibility of the project. What are the assumptions made? Why?
What alternative scenarios can be constructed? Would the decision on project feasibility and financing be changed after evaluating multiple scenarios? If you were to finance the project, what would you do?
Taking Off with TV Channel Project
It was the morning of 15 January 2011. After the ‘seatbelt signs’ went off, the cabin crew leader in her sweet but mechanical voice invited the passengers in AI933 to ‘sit back, relax and enjoy the flight’. Samjad in seat 12A reclined his seat back, but his mind refused to relax. He had spent a tiring week in New Delhi, which was largely spent in pushing papers in government offices to acquire a license for a new satellite news channel. After almost 2 years of filing application, he was promised that the ministry would be clearing the license of this regional current affairs-based channel after 26 January—Republic Day. 1 This was a long domestic flight from the Indian capital New Delhi in the north of India to a small city Cochin, which is in the southernmost state of India. His mind began processing the next set of actions to make this project take off quickly. At Maledia Broadcasting Ltd (MBL)—a new venture of Maledia Group—the board was still searching for the chief executive officer (CEO) and as deputy CEO, he was in charge of launching the new regional news channel in Malayalam and reported to the board directly. Although so far, his efforts were directed to acquire the news channel license for a Cochin-based, regional, Islamic media group, he realized that the coming months would be more demanding for making the project a reality. His first task was to prepare a project report containing a feasibility analysis, which would persuade the financiers to fund the project. His journalistic background and political connections had helped him so far, but he had to put his business skills to prepare a strong business case for the channel launch. There were many challenges: fast overcrowding television broadcast space in the country, challenges in generating revenues from traditional sources such as advertising due to the company’s ethical code and limited success of most news channels existing so far. He opened his laptop and started going through various Excel sheets he had collected in the last six months.
Maledia Broadcasting Ltd
In 2011, MBL was a new enterprise of Maledia Group, owned by the Model Publications Trust. MBL was proposing to launch a current affairs-based regional television channel in Malayalam (tentatively named Mega One) with complete value creation and delivery functions that a broadcasting company generally engaged in. MBL was founded based on the vision articulated as: ‘An unbiased and innovative endeavour to explore the fullest value of media as a servant of all species, driven by sustainable values and inclusive policies.’
MBL’s business structure and strategies were still under development. However, it was clear that its business model and policies needed to be aligned to the corporate values of the Maledia Group, which provided unique lineage and legacy through its print media business. The group values were reflected in the business approach taken by Maledia, the newspaper.
Maledia, with the aim of ‘providing non-profit, non-partisan and value-based journalistic service free from market pressures’, was a daily newspaper published from Cochin, Kerala, since 1987. It had nine editions across the state, and its Gulf region version called the Gulf Maledia had seven editions in the Middle East countries. According to the Indian Readership Survey 2009, it was the fourth largest read newspaper in Kerala. Some of the distinguishing features of the existing business of Maledia were likely to be applied to MBL as well.
The Malayalam daily newspaper focused on ethics and universal human values partially against capitalism/imperialism and favour cultural & traditional way of life and thinking which were more sustainable and inclusive
News, views, features and analysis of issues of concern to the middle class
Popular largely among Muslim, Malayali audiences and perceived as a niche newspaper in Kerala largely targeted at Malayali Muslim middle class
More than 60 per cent of the total readers were above 40 years and above
Its influence was more perceived to be among Malayalis in the Gulf region rather than in Kerala
Circulation of 313,000 copies from India—predominantly from Kerala and neighbouring states. An almost similar number (261,000) of copies were sold outside India in the Middle East—UAE, Qatar, Kingdom of Saudi Arabia (KSA), Bahrain, Kuwait and Oman even though it was in the Indian language
Interestingly, in terms of revenues, Maledia generated double the revenue (₹1 billion advertising sales) from Middle East markets than from Indian markets (₹500 million).
The newspaper also had an online edition with visitors predominantly Keralites residing in over 108 countries worldwide. However, the online edition had non-significant revenues. One of the significant aspects that drove the group was the advertising policies that appeared to be in direct conflict with general business objectives and market opportunities. While the values of the group were universal, it was felt by many within the group that the policies framed at the time of launching the newspaper 23 years back were not relevant in the current time of globalization/liberalization/privatization, digital advancements, cultural change of the society and changes in the target audience and so on. The business policy struggled to balance the perceived orthodox principles and market opportunity. It was in this light, that the Maledia Group needed to examine a business case for a new television channel.
Television Broadcasting in India
In 2011, the broadcasting and cable TV industry in India consisted of all terrestrial, cable and satellite broadcasters of digital and analogue television programming. The market was valued as the revenues generated by broadcasters through advertising, subscriptions or public funds (either through TV licenses, general taxation, or donations).
TV was the largest segment of the Indian media and entertainment industry, with a size of close to ₹350 billion in 2011. Between 2005 and 2009, the Indian broadcasting industry grew at 12 per cent compound annual growth rate (CAGR) compared to 3 per cent and 4 per cent CAGR of global and Asia-Pacific, respectively (see Table 1). Further, by 2014, it was expected to grow up to ₹521 billion at 15.2 per cent CAGR. The year-on-year growth trends between 2006 and 2014 indicated robust growth. Global and Asia-Pacific markets also indicated steady growth over the next few years in the future (see Table 2).
Indian M&E Industry: Projected Size, Growth and Trends by Segments
Broadcasting Industry: Size, Growth Rate and Projections
In India, TV viewing, in general, was on the rise compared to the previous 4 years (see Table 3). On average, Indians spent about 2.5 hours a day in front of the television, which amounted to roughly 18 hours a week. Target Group Index (TGI) India 2 estimated it to be 17.1 hours a week.
Average TV Viewing Time: Daily
Revenues in the TV broadcasting industry fell into three categories; subscriptions, advertising and content. Comparing the Indian broadcasting industry with global and Asia-Pacific, subscription revenue contributed as much as 65 per cent and the remainder came from advertising. As per PricewaterhouseCoopers (PwC) estimates in the Indian entertainment and media outlook 2009, roughly 4 per cent revenue in India came from content/licenses and other sources such as public funds roughly indicating 61:34:4 subscription: advertising: content. Globally, and even within Asia-Pacific, close to 50 per cent came from advertising and close to 10 per cent came from the content/license (see Figure 1).
Thus, for the Indian broadcaster, the two main sources of revenue were subscription/distribution and advertising. The trends in the proportion of revenues from the two main segments remained and projected to remain similar (see Figure 2).
Subscription/Distribution
The Indian broadcasting industry transformed itself in the last few years with a reach of almost 500 million TV viewers. The overall penetration of TV households had increased from approximately 50 per cent 5 years back to nearly 60 per cent by 2009. The number of TV-owning households had increased from 123 million to 129 million in 2009 with around 95 million cable and satellite (C&S) households. Growth in the C&S households was more than the overall growth in households. The penetration of C&S households had increased from 70 per cent of the total TV households in 2008 to 74 per cent in 2009. The overall number of C&S households reached 95 million, registering a growth of 10 per cent. A large part of this growth came from the digital homes that were added. The number of digital cable subscribers reached an approximate size of 4 million in 2009. Apart from the government’s attempt to gradually shift towards digital by making it mandatory to adopt conditional access system (CAS) in certain areas, voluntary CAS adoption also grew in 2009 as consumers realized the benefits of going digital. The number of analogue cable subscribers declined as there was an increased penetration of digital distribution systems. Direct-to-Home (DTH) was one of the biggest contributors to the digitization story. DTH displayed rapid growth to reach 20 million gross subscribers by the end of 2009. The number of subscribers excluding the churn stood at 16 million.
Subscription revenue was largely contributed by companies that specialized in distribution such as cable operators and DTH companies. The share of broadcasters (pay channels) in the total subscription pie was 18 per cent, which was expected to go up to 27 per cent in 2014. It was expected to be driven by digitization, which brings about more transparency in the declaration process. The share of subscription revenues in the top line of the broadcasters was expected to increase from 26 per cent to 33 per cent by 2014. Subscription revenues were growing at a CAGR of 24 per cent compared to the growth of advertising revenue, which was growing at 15.6 per cent. For free-to-air channels, subscription revenue was nil, but the major source for free-to-air channels was the advertising revenue.
Advertising
Advertising contributed about 34 per cent to 35 per cent in the total broadcast market in India. According to PwC estimates, by 2013, it was expected to contribute about 39 per cent. In 2009, the top 10 industry sectors contributed as much as 59 per cent of total advertising spend. Coming out of recession, it showed an increasing trend. Food and beverages contributed as much as 14 per cent of the total ad spend in India. Together, fast-moving consumer goods (FMCG) dominated television advertising, though an auto, financial services and telecom services contributed significantly too. In terms of volumes, TV advertising recorded a growth of 31 per cent in 2009 compared to the same period in 2008. The rates remained flat or dropped in the first half of the year. Also, compared to print, where the ad volumes had increased only marginally over the last 2 years, TV had shown a healthy growth rate. The last 3 years’ CAGR in terms of advertising time remained 26 per cent.
The ad inventories had gone up due to new channels and due to an increase in commercial time per hour of programming. Hourly free commercial time (FCT) varied from genre to genre and channel to channel, and hence it could have been anywhere between 2.5 minutes to 18 minutes per hour. Hindi general entertainment channels (GECs) in 2009 had 17 minutes of commercial time per hour during prime time with 14 minutes of break time and 3 minutes of promotion (self-promo) time. In the future, the commercial time was not expected to increase more than this, and the increased rate contributed to the size of advertising revenues.
Competition
According to television audience measurement (TAM), in India, there were about 120 channels in 2003, which went up to 389 active channels in 2008 and increased to 460 in 2009. In 2010 it was estimated to be 515, and in March 2011, the total number of approved channels in India was 626. The number of genres and niches was expanding as well with an increased presence in news, kids, infotainment and lifestyle. An interesting trend in the industry was that it had seen significant growth in the number of regional channels in the previous couple of years. GECs and movie channels commanded higher shares among Indian viewers. Hindi GECs put together 26.2 per cent shares of viewership in 2009 (January to August). Hindi and regional movies followed the entertainment channels and then Hindi and regional news in that order. Hindi news channels put together had a 3.7 per cent share. Regional news channels commanded 3.4 per cent and were on the rise. English news and business news channel genres had each 0.4 per cent share. More than 50 per cent of the viewership in the Hindi speaking market (HSM
3
) was dominated by Hindi GECs and movies combined. However, in the south, regional GECs alone captured close to 50 per cent. It was interesting that in the southern market, regional news and infotainment indicated a positive change in viewership share compared to the first half of 2008 and 2009 data. Sports, kids and regional GECs were down in the south (see Table 4). Some of the major national and local competitors are listed below:
NDTV: New Delhi Television was founded in 1988. It had two major news channels (NDTV 24x7 [English] and NDTV India [Hindi]). NDTV was a pioneer in the news segment in India that had produced the first televised coverage of elections and was the first private producer of national news. It had an overseas audience among the Indian diaspora in the USA, Canada, the UK, the Middle East and South Africa. CNN IBN: It was established in 2005. TV18 Broadcast Limited completely ran the channel. In 2016, CNN-IBN was rebranded as CNN-News18 and had more viewership than its international sister network. Manorama News: It was launched in 2006. It was a unit of Malayala Manorama Company Limited, which was one of the largest media groups in India with a diverse portfolio of leading brands in print and online. It was available in the GCC countries such as the UAE and Qatar Asianet News: The channel came to existence in 2001 as Asianet Global and was renamed to Asianet News in 2003. It was owned by the Asianet News Network (ANN) of Jupiter Entertainment Ventures. Amrita TV: Established in 2005 as an FTA GEC-cum-News channel, it had a global footprint covering Australia, Singapore, Middle East, Europe, the UK, the USA, Canada and South Africa. It had the backing of the organization, Mata Amritananthamayi Math. Asianet: It started in 1993. It had a 12-hour operation in 1994, which was later increased to round the clock. It was based out of Trivandrum, Kerala. The channel was part of Asianet Communications Limited owned by STAR India. Asianet was the first privately owned television channel in Malayalam and the second to broadcast in India. Asianet reached the homes of Malayalis in over 60 countries worldwide, including the Indian sub-continent, China, South East Asia, Middle East, Europe, the USA, and the lower half of the former Soviet Union.
Viewership Shares by Genre: All India, HSM and South Markets*
Media and Entertainment in Kerala
Kerala was one of the most significant regions from the point of view of media consumption. Due to its near 100 per cent literacy, social progressiveness and very high political awareness and interest, it boasted of a very large number of and high-quality media consumption, particularly news and infotainment. While Malayalam newspapers and print media had a large readership compared to many other regional presses in the country, Kerala also had one of the most evolved and dedicated regional broadcast viewers. At the beginning of 2011, close to 20 Malayalam channels were active. As many as 4 pureplay news channels focused on current affairs and many other GECs such as Surya, Kairali and Jeevan had primetime news bulletins. There was Victers, promoted by the state government, which focused on education. Asianet communications led in terms of overall presence and impact in Malayalam TV broadcasting with leading GEC, a news channel, a dedicated Middle East channel and a youth channel.
Malayalam TV broadcasting scene was likely to get cluttered and more competitive in the near future. There were more than a dozen channels in Malayalam, which were rumoured to start soon, many awaiting broadcasting license clearances. This was likely to fragment the audiences and also create a talent crunch. However, like in many industries and markets, these might get consolidated in the long run.
Some of the channels that were reported and rumoured to show up on the Malayalam TV broadcasting scene were from existing regional players entering in new genres and some national and southern market players. Other news channels expected were Sahyadri 24*7 and The Reporter. It was important to note that existing players in print media such as Mathrubhumi, Kaumudi apart from Maledia were entering in TV space. News genre leader Manorama was entering GEC space, and GEC channels such as Surya, Jeevan and Amritha were planning to enter in pureplay news genre.
Television Distribution and Reach
Asianet reached as many as 82 per cent of the C&S homes with the highest reach, followed by Surya (78%), Kairali (64%) and Amrita (55%). Asianet, with its sister concern Asianet Satellite Communications in distribution, had a distinct advantage, which was reflected in its viewership share as well. Among the news channels, however, Manorama News had the highest reach with 50 per cent households reached followed by Indiavision (48%) and Asianet News (45%). People channel had 38 per cent reach (see Table 5).
Reach (Distribution): Malayalam Channels
Based on the TAM television ratings in 2010, channel shares of channels in Kerala are presented as a chart (see Figure 3). It is important to note that the data are for all channels (Malayalam and others) viewed in Kerala.
Television Advertising and Advertiser Profile
As per TAM media analyser package (MAP)/AdEx estimates, in 2010, advertisers spent ₹12.5 billion. However, these estimates were based on card rates and actual rates at which commercial time was bought by media agencies at run on day part (RODP) was much discounted. Based on the sources in media agencies, Samjad believed that the TAM AdEx might be accounted at about 20 per cent as actual spending and revenues to the broadcasters. After adjustments for discounts, the trends in advertising spend on Malayalam channels in 2010 is shown (see Figure 4).
The channel-wise annual ad spends on Malayalam channels gave an overall picture of advertising revenues by Malayalam channels (see Table 6). Despite higher reach and viewership, in terms of advertising revenues, Kairali led with 20.5 per cent, followed by Asianet at 18 per cent. Amrita contributed about 14 per cent and Kairali 8.5 per cent in total ad revenue pie for Malayalam channels. As mentioned earlier, a blanket 20 per cent of the TAM estimates was considered for all channels to account for the discounts.
Monthly Ad Spends on Channels
Card rates for ten seconds commercial time (CT) for the prime-time news programmes on national English language channels were known to be ₹3,000 for NewsNite and NewsHour and ₹3,800 for CounterPoint. However, prevalent rates in Kerala were ₹1,900 for NewsNite, ₹3,000 for NewsHour and CounterPoint. It was believed that the national media agencies bought commercial time at rates between ₹800 and ₹2,500 for ten seconds.
Based on TAM AdEx data available, Samjad also learned some important information. Of the total ₹2.5 billion spend on advertising on Malayalam channels, local Kerala-based companies spend about ₹1 billion. Of this ₹1 billion, almost 50 per cent was contributed by the top twenty-five to thirty advertisers. National brands spent about ₹1.5 billion on Malayalam channels. Gold jewellers and gold loan companies dominated. There was significant advertising on Malayalam channels by sarees and garment retailers too. A government organization like coconut board and Kerala tourism also figured in this list. The big spenders from Kerala spend an average of ₹20 million on TV annually. Packaged goods brands were a few barring the packaged spice companies in the list of top Kerala spenders on TV.
Characteristics of the Kerala Market
Youth migration: Due to high levels of literacy and poor job opportunities, Kerala witnessed a very high level of youth migration outside Kerala—within India and over overseas. Advertisers believed that the major consuming class is absent in the region. The age group of 25–50 years stayed outside Kerala and people in the age group 0–25 years and 50 years plus stayed in Kerala. For advertisers, this was quite a concern as the available population in the state did not drive the market.
Cash-based economy/tourism-driven: Kerala, however, had a high inflow of remittances in the state. It was supported by the fact that the per capita expenditure in the region was higher than the per capita income. This made Kerala a cash-based economy. Also, the consumption of goods and services by locals was less compared to the expats. Further, tourism, particularly by foreigners, contributed significantly to the economy.
Highly literate population: Kerala, with high literacy levels, was considered one of the most socially, politically aware state. Consumption of media and information hence was quite high. People, therefore, were extreme left and right-skewed and had an opinion and ideological inclinations.
Asset-based consumption: Another peculiarity of the Kerala market that advertisers and marketers found was that the most consumption and purchases were functional. Consumers spent largely on high-value possessions such as home building material, furniture, jewellery, automobiles and durables. Among low-value purchases, the focus was on functional goods. Experiential goods and services were consumed at a minimum by the locals
Assessing Investment Opportunity
Samjad took a sip of the soft drink as he continued putting together the data and information in three folders on his laptop labelled ‘initial investments’, ‘cost estimates’, and ‘revenue estimates’.
Initial Investment
Over the last few months, Samjad had several meetings with the broadcast and studio technology companies to set up the initial infrastructure. A couple of shortlisted companies providing end-to-end broadcast solutions were briefed on the rough plans that Samjad had in mind. While the proposals with the commercial offers received from the two solution providers looked similar in terms of proposed requirements to set up the news channel infrastructure, there were minor differences in terms of equipment specifications and quantity of some loose items. The key items included: (a) setting up of head office (HO) newsroom equipment, (b) setting up seven bureaus with studios, (c) approximately seventy cameras plus accessories, (d) pre-operative cost and (e) license charges and other project-related costs. Based on the offers from the two proposals, he estimated for each of the key items of the broadcast technology solution (see Table 7). He knew fully well that the project was at the blueprint stage and the requirements might evolve while executing the project. There could be some variation in a studio set-up and equipment costs depending upon the specifications finalized. He decided to account for about 25 per cent variation on the estimate of approximately ₹320 million.
Initial Investment
Cost Estimates
To estimate costs, he had considered to benchmark against the costs of comparable news channels. He had managed to get data from the Centre for Monitoring Indian Economy (CMIE) Industry outlook about the company-wise break-up of financial data in the Indian broadcast industry. Using these data, he planned to look at three broad cost categories: ‘capex and working capital’, ‘operating costs and salaries’ and ‘depreciation’.
For sustainable growth, it was necessary to invest in capacity creation annually for some time after the initial investment. Based on comparable news broadcast companies’ data (Malayalam language), capex for the second year was estimated to be ₹20 million, which was planned to grow to ₹80 million by the fourth year by doubling the investment each year. Samjad forecasted capex to remain the same in the fifth year, it could be reduced to half, ₹40 million at par with the industry average and then allowed to grow at routine 6 per cent annually, up to perpetuity.
Samjad felt that being new to the industry, it would be difficult for Maledia Broadcasting to dictate collection as well as payment terms. Based on the comparable companies’ data (Asianet, Indiavision and Zee Akash), an average increase of ₹10 million in net working capital was forecasted for the first 3 years. After that, it was estimated to grow by ₹15 million for the next 2 years. And finally, ₹20 million for the sixth year and then increasing at 6 per cent till perpetuity.
Across the industry, the operational costs mostly comprised of manpower costs, travel, rent, recording tapes, salary and so on but did not include equipment depreciation. He pulled out an Excel sheet which had detailed estimates on operating costs (see Table 8). Samjad had taken help of financial professionals at the group newspaper company to help forecast the costs, who suggested it to be 55 per cent of the sales revenue in the second year based on analysis of comparable companies in the broadcast industry (Indiavision–61%, Asianet–24%, Malayalam Comm–20%, Sun– 15%). He was told that the costs thereafter may be considered to diminish at the rate of 5 per cent till the sixth year. From the seventh year, the operating costs were assumed to be constant at 35 per cent of sales revenues till perpetuity.
Operational Costs
Samjad decided to consider depreciation to be 35 per cent computed based on the written down value method as per Indian tax norms.
Comparable broadcasting companies’ data were taken to calculate the hurdle rate (see Table 9). The capital structure of MBL was decided to be 2:1 (with debt taking majority share). This was because they had investors willing to pump money into the venture, and hence the debt component was double the equity component. The operating leverage of MBL was 1.75. The long-term risk-free rate was 7 per cent as per RBI records in 2011, and the market risk premium was 8.75 per cent (Varma & Baruah, 2006). The interest rate on debt was assumed to be 11 per cent. The corporate tax rate that was prevalent in India was 33 per cent.
Beta’s of Comparable Companies
Revenue Estimates
Estimation of revenue was the trickiest part for Samjad. He had a free-to-air channel, there was no expectation of earning much from subscription or royalties. The revenues would come from advertising only. Advertising sales head at the Maledia newspaper had already shared his frustrations, indicating clearly that due to the company’s policy and norms, they had to forgo business from some categories. Hence, advertising revenues could be as much as 50 per cent less than another broadcast channel in the similar situation. Samjad thought of estimating the revenues based on the two approaches, which can then be synthesized to arrive at reasonable estimates.
First was the supply-side forecast approach. Commercial time for leading GECs reached up to 17 minutes in an hour of broadcast time. 4 It was observed that Malayalam channels worked on 7 minutes for 30-minute broadcast time and usually broadcasted for 18 hours in a day. In other words, 14 minutes per hour. Hence, for revenue projections, 12 minutes per hour of commercial time could be estimated to be available on the proposed channel. An average 10-second spot was sold at a rate of ₹1,275. He calculated annual commercial time inventory to estimate maximum revenues, which could then be adjusted for expected monetized time and the average rate.
Samjad then decided to examine demand-side numbers. His estimates suggested an ad spend of ₹2.5 billion on Malayalam TV channels. While GECs such as Asianet and Kairali had shares ranging from 15 per cent to 20 per cent, the leading pureplay news channels had shares ranging from 2.5 per cent to 10 per cent. Manorama News, with its multimedia presence (in print as well), had a higher share (10.6%) amongst pureplay news channels (see Table 6). Samjad knew very well that if he had to survive, this could not be a pureplay news channel. Still, it would be an infotainment channel providing news, views, documentaries, reality shows and serious entertainment programming. This meant it would not be a pure news channel or a GEC but a very specialized positioning, thereby carving out a niche for themselves through this novel approach. Thus, keeping in mind the proposed positioning of Maledia as general entertainment news channel (GENC), he decided to forecast a 4 per cent share of total ad spends on Malayalam channels for the first year. Thus, the forecast revenue in the first year was pegged at ₹100 million. For the subsequent 3 years, sales revenues could be assumed to grow at 20 per cent to 30 per cent per annum (considering the growth stage of the company). After that, assuming 20 per cent sales growth for the next 2 years and subsequently 6 per cent growth annually till perpetuity was reasonable according to him.
Feasibility and Scenario Analysis
The seatbelt sign was back again and the aircraft was on the descent, but Samjad was still immersed in the datasheets. He had to be ready with financial projections and feasibility of the project for his meeting with the group chairman. As soon as the license was cleared by the end of the month, he had two months to roll out the plans before the channel went on air in April 2011. He knew very well that the channel would go on air anyway. Still, a lot would depend on the feasibility, the financial projections, and the payback period in which the capital cost could be recovered. He knew that calculating the net present value (NPV) and internal rate of return (IRR) was a standard procedure. Still, the real questions were how he would make estimates of revenues, project costs, rates of interest and so on. There were several internal and external issues to be kept in mind. The available data required adjustments to provide realistic projections yet justifying the project. He thought of developing various scenarios to estimate business risk.
As Samjad saw a crew member who was doing final pre-landing checks coming towards his seat, he quickly saved the files, put the laptop back in the overhead compartment and fastened his seat belt. The plane reached closer to the ground but the airstrip was still hidden in the green, tropical forests below.
Footnotes
Acknowledgements
Authors would like to acknowledge the inputs received from Aravind Sampath of IIM Kozhikode in improving the case.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.
Supplementary Material
Supplemental material for this article is available online.