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MEDIA
1QFY12 earnings season shall see moderated top-line performance from
media companies under our coverage universe. Entertainment broadcasters'
topline shall be adversely impacted by the extended cricketing season (IPL),
while newspaper publishers are likely to see softer growth on account of
weaker advertising from the education category. In terms of subscription
revenues, we expect broadcasters to continue benefiting from DTH
proliferation/ digitization. Expenses shall rise strongly, however, and place
a cap on earnings growth. Newspaper publishers shall be burdened with
newsprint prices that have risen ~30% y/y, while broadcasters shall face
higher content/ publicity expenses in a bid to remain competitive. Net-net,
we expect our coverage universe PAT to rise 4.1% y/y in the aggregate; and
see muted impact of the earnings season on the sector. We expect strong
earnings performance from ENIL (BUY, PT: Rs 280), and Sun TV
(ACCUMULATE, PT: Rs 238); we expect poor earnings growth in UTV
Software (SELL, PT: Rs 358).
We believe that strong growth in consumption shall continue to drive advertising
expenditures through the quarter gone by, and our discussions with companies suggest
that the impact of higher interest rates and inflation is yet to be felt on advertising
budgets in the aggregate; even as there may be a slight slowdown in the
quarter for certain genres. Broadcasters as well as newspaper publishers have raised
advertising rates over the past few quarters, and are likely to see benefits of a degree
of pass-through. However, entertainment broadcasters are likely to have felt
softness on account of a strong cricket season (IPL); Newspaper publishers are likely
to feel the impact of lower advertising from education sector in the quarter, as
school results have been delayed this year, thus rolling forward some advertising
expenditures to 2QFY12.
Expenditures are unlikely to moderate for most industry players. Newspaper publishers,
in particular, shall face the burden of significantly higher newsprint prices during
the quarter. We note that newsprint prices have risen ~22% y/y. Most newspaper
publishers, in our understanding, have taken cost rationalization measures in the
past year, with regard to the quantity of newsprint consumed. Given that yields are
likely to contribute ~50% to revenue gains, newspaper publishers are set to witness
a significant (3-4 ppt) decline in gross margins.
Companies are also likely to incur significant expenses on account of new launches/
promotional expenditures: DB Corp continues to invest aggressively in new editions
(Marathi) in Maharashtra, which is likely to continue impacting margins, Zee Entertainment
has undergone a significant rebranding exercise, while HT Media has continued
to raise circulation for various editions. Long-term growth continues to be
viewed as a given; as a result, general promotional/ other expenses shall continue to
rise meaningfully. In sum, we believe that the current quarter shall bring forth a 0.6
ppt (y/y) EBITDA margin contraction on the average, over our coverage universe.
We see PAT growth in our coverage universe at 4.6% y/y. For the sector as a whole,
we do not anticipate the result to have an impact. However, we are bullish on
growth prospects for ENIL (232% y/y growth in PAT), and Sun TV (+23.0% y/y
growth in PAT). We expect weak 1QFY12 from UTV Software, and Zee Entertainment.
n DB Corp: Advertising revenues shall continue to be strong for DB Corp, enabling
growth of 16% y/y for the company. We expect DB Corp to witness fairly high
growth in newsprint expenses, as domestic newsprint prices have also risen in
line with growth in international prices, impacting gross margins negatively.
Moreover, DB Corp has launched fairly large editions in the past year, which
shall have an impact on the margins of the company. In 2QFY12, DB Corp has
launched Marathi newspaper "Divya Marathi" in Aurangabad, which shall also
bring in pre-launch expenses. For these reasons, we believe the company shall
bring in 26% EBITDA margin, a decline of 12 ppt y/y. We expect EPS for the
company to decline 23% y/y in 1Q FY12.
n HT Media: We believe English newspaper shall be less impacted by the weaker
advertising from the education category. Further, we believe the continued
strength in HT Media's readership across key newspaper properties shall help the
topline grow 18.5% y/y. We factor in well higher growth in newsprint consumption,
and expect a 150 bps decline in EBITDA margins for the quarter. Expect
PAT to grow 8% y/y.
n Jagran Prakashan: Advertising revenues shall be impacted strongly by delays in
education category advertising, leading to weak growth in revenues. The company
has indicated that domestic newsprint prices have begun to rise, and the
impact of these shall be felt on margins in 2QFY12. Expect weak earnings
growth, at 1.4% y/y.
n ENIL: ENIL is likely to report strong 3QFY11 results, on the back of strong revenues,
as inventory levels remain healthy and yields rise on the back of rate
hikes taken by the company. We note that 1QFY12 revenues shall be markedly
lower than 4QFY11, which benefited from advertising related with the cricket
world cup. Expect margins to rise 8.7 ppt y/y, and earnings to rise 232% y/y.
n Zee Entertainment Enterprises Limited: Advertising revenues for the company
shall remain affected by the extended cricket season. Given weak ratings (of key
GEC channels) and viewer fatigue on cricket, we expect that ZEEL shall report a
weak set of numbers for 1QFY12. The quarter's financials shall be an important
indicator in the determination of the extent to which last quarter's gains in subscription
revenues were transitory. Expect 0.5% decline in earnings (y/y) in
1QFY12.
n Sun TV Network: Advertising revenues for the company are expected to remain
robust on account of rate hikes taken by the company, as well as the continued
competitive strengths of Sun TV Network's channels. We expect analogue revenues
to sustain at last quarter's levels, as there has been little change in the
competitive position of Sumangali cable. Expect continued strength in DTH revenues.
We forecast 18% growth in revenues and 23% growth in PAT for Sun TV
Network's 1QFY12 results. .
n UTV: The company had one major release in the quarter - Thank You, which has
performed reasonably well in the initial weekend. Expect movie business revenues
as well as profitability to remain strong. Broadcasting profitability shall continue
to be weak, on account of new channels that the company has launched
(or are in process). The company shall report revenues from its El Shadai game,
from Japan launch, in late April. Profitability of games segment shall primarily
depend on the volumes for the game, as also the extent to which costs of development
are amortized in the quarter. We expect the company to amortize a significant
portion of El Shadai's development expenses. Overall, we expect the
quarter to be weak for UTV Software, with EPS decline of 34%.
n IBN18: We expect IBN18 to report 21% growth in revenues, primarily on account
of advertising revenues. Expect carriage fees to continue on a downward trend,
offsetting growth in programming expenses. We expect EBITDA margins to come
in at 4.2%, broadly in line with 4QFY11. The company is expected to see traction
in subscription revenues only in the later part of the year. We expect PAT
losses of Rs 87 mn in the quarter.
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