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Media
Sector Outlook
The Media sector remains one of the best ways to exploit the investment opportunity fuelled
by domestic growth, in our view, and is a play on the Indian consumption story.
Advertising to GDP spend still low – ample headroom to grow. Our economics
team estimates India’s GDP growth to be 8.5% in FY12. The charts below highlights
the tight correlation between advertising spend growth and GDP growth. Hence, we
believe that Indian media stocks would post buoyant performance, given the
underlying current in Indian economy
We have divided our media coverage universe under two headings:
Broadcasters: Offer Twin levers of growth - advertising and subscription
Distribution: Prefer DTH platform over cable operators
Sector Top Picks
Top Buy Recommendation/s
Zee Entertainment (Outperform; TP: Rs168; Potential upside: 25%)
Competitive intensity has hit a plateau. Lured by the attractive opportunity in the sector,
four new channels entered the Hindi GEC genre in 2008. Even so, except for Viacom 18’s
Colors, others have not made an impact. Competition in the genre remains intense, but we
believe that loss in ad revenue market share for Zee has played out.
Rural exposure: adding spice to the curry. Zee added six highly profitable regional
channels in its portfolio in January 2010, following a stock swap deal with promoter group
company Zee News. We believe that regional media is an attractive opportunity that would
add to Zee’s top line and improve its profitability.
We like Zee for its profit focus, advertising rate hike is the next trigger. Zee has
managed to sustain its profit profile even in times of financial crisis. We believe there is
upside risk to our numbers if Zee hikes its advertising rates for FY12, given the strong
consumption led demand creation leading to hike in rates.
Key risks: Macro level slowdown. Ad spending in the economy is sensitive to the
country’s GDP growth forecast, and slower-than-expected GDP growth can hurt the
industry’s advertising growth. In the case of slower GDP growth, we see downside risk to
our advertising revenue assumptions. Zee has been able to increase advertising revenues
at a faster pace than the industry; if GDP growth slows, the company could have difficulty
maintaining its track record.
Key Near-Term Catalyst
Uptick in ad rates, improved profitability of Sports segment.
Dish TV (Outperform; TP: Rs72; Potential upside: 16%)
Market leader in the fastest growing distribution segment. Dish TV India (Dish) is
India’s only listed pure play direct to home (DTH) satellite television service provider. It is
the dominant player with 30%+ market share in a six player market.
Gained market share in recent quarters. After two successive years of adding 8m DTH
subscribers we expect the industry to add 12m customers in FY11. Dish TV has been
executing well and has increased its net add market share in 2QFY11 to 27% from 20% in
1QFY11.
Fixed price content deals cornerstone of profitability. Our margin improvement
assumption (12% in FY11 moving to 22% in FY12) for Dish is based on fixed price
contracts that the company has signed with broadcasters.
Key Near-Term Catalyst
Increase in subscription ARPU.
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