Citi :Media: 2011 Sector Outlook

Visit http://indiaer.blogspot.com/ for complete details �� ��


Advertising Recovers; Will Costs Follow?
 Healthy ad market growth — Advertising volumes have picked up on the low
base of CY09 – inventories across key Hindi GECs and radio are running full;
and print volumes have accelerated, especially in the regional markets.
Going forward, the impact of rising yields would be visible and should drive
ad growth. We expect ad spends to remain healthy on the back of good GDP
growth (~8-9%), and buoyed by the low penetration levels in India, strength
across key advertising categories (consumer, auto, telecom) and growth in
local advertising.


 Costs may rise too in a buoyant market — We believe buoyancy in the
industry could lead to higher costs (content, staff and S G&A) going forward.
ZEEL mgmt has, in the recent past, guided to ~15% yoy cost increase (ex
sports) in FY11. Rising competition and fragmentation remains a challenge
across most media sub sectors – could impact the cost structures and
profitability over the near to medium term.
 Digitalization continues at a healthy pace — Subscriber growth seems to
have accelerated in recent months – the industry is adding ~850K
subs/month. Investments by DTH operators (subsidizing CPE + advertising)
are driving digitalization in India. This also aids margins of the broadcasters.
 Key issues to focus — a) ZEEL- Sustaining market shares in key channels is
important for ad revenue growth and costs going forward. Performance of
the sports portfolio is an important consideration. b) Sun TV Network – While
Sun is well placed to benefit from its dominant position and ad market
buoyancy; one must keep in mind the already heightened market
expectations. Movie business performance (Endhiran) and sustenance of
higher analogue subscription revenues may drive earnings growth.
 Top Picks — Our top Buy is DB Corp – margins are expected to be stable
despite a) incorporating higher newsprint price (~US$600/t, +13% yoy in
FY11 from the multi year lows of FY10) in our forecasts and b) near-term
losses of Bihar/Jharkhand. We view the forays in the new markets as a very
attractive proposition given the low penetration and high growth – likely to
benefit over the medium to long term. Solid advertising leverage and good
cash generation should result in ~20% EPS CAGR over FY10-13E. We rate
UTV as a Sell given the increasing leverage and muted return ratios.