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Media & Entertainment - India
Growth rates likely to rebound
�� Accelerated growth in FY13E; Picks- Dish TV, DB Corp, ZEE
Media stocks have underperformed the Sensex by about 6% over the last three
months, led by concerns on lower ad growth. While we expect 2H FY12 to be
challenging, forecast ad growth to rebound in FY13E led by macro recovery & a
likely higher ad allocation to GEC genre from sports. We raise earnings & PO for
ZEE and have cut for DB Corp & Jagran to factor weak 2H. We expect earnings
to accelerate in FY13/14E and see upside of 13-54% for stocks under our
coverage. Prefer Dish TV (likely turnaround in profit & FCF), Zee (turn around in
ad growth) and DB Corp (accelerated ad rev growth led by market expansion). .
Ad spends likely to rebound in FY13E
While we factor in a likely weak 2H FY12, we believe ad spends in FY13 will
rebound given 1) a likely turnaround in macro in 2H FY13E, and 2) potential
higher allocation to the general entertainment channel (GEC) genre from sports
genre given lower number of cricket days in CY12 vs. CY11. Post 500bps yoy
increase in allocation to sports (21% share) during CY11E led by world cup, we
expect allocation to decline ~300bp next year aiding growth for non sports genres
especially GECs. We forecast spends for non sports genre to grow ~15% yoy in
CY12 vs. an estimated 4% growth in CY11E.
Risk-reward favorable : Dish TV & DB Corp stands out
While risk-reward remains favorable for stocks under our coverage, our analysis
indicates positive returns for Dish TV and DB Corp even in the worst case scenarios.
See could upside potential of ~7% for Dish TV and DB Corp under worst case. For
Dish TV, revenue model is largely subscription driven and should see limited impact
other than a higher churn in subscriber base; DB Corp should benefit from increasing
revenue contribution from recent launches (Maharashtra & Jharkhand).
Valuations: Unlikely to correct
While slowdown reminiscent of 2008, we believe valuations are unlikely to correct
to 2008 levels given that companies currently have much strong balance sheets
and financial metrics. For eg Net cash and equivalent for Zee now stands at
Rs11.1bn vs. Rs3.6bn in 2008. Also, companies in the sector we think have a
much better margin profile and return ratios compared to yr 2008.
Top picks
Dish TV: Less likely to be impacted by the macro slowdown given that nearly 85% of
its revenue comes from subscription. ARPU expansion remains on track. Dish
recently raised pricing for entry-level schemes by 6%. In the worst-case, we estimate
subscriber churn could increase to 14% over the next two to three years,
impacting EBITDA by about 10%. We see potential upside of 15% even in the
worst-case scenario. We believe recent stock correction led by concerns on
equity dilution provides a particularly good buying opportunity.
. Zee: Likely to benefit from a rebound in ad growth in FY13E led by a macro
recovery in 2H FY13E and a likely higher allocation to GEC given the lower
number of cricket days in FY13E. In the worst case, we expect ad revenue to
grow about 8% YoY in FY13, leading to 9% YoY growth in earnings. Margins are
likely to expand, led by increasing subscription revenue (about 42% of revenue)
and rebound in ad growth. Its balance sheet is much healthier vs. 2008 with cash
equivalent at Rs11.1bn and improved return ratios and margin profile. We raise
estimates ~3-4% to factor higher ad growth and raise PO to Rs145.
DB Corp: We expect accelerated ad growth over the next two years, led by: 1)
recovery in ad spends and 2) increasing contribution from its recent launches in
Jharkhand and Maharashtra. In the worst case, we expect ad growth of 10% YoY
during FY13E, led by 5% growth in national ads (40% of revenue) and about 12%
YoY growth in retail ad vs. estimated 6% and 19%, respectively, in FY12. A delay
in its Bihar launch plans beyond FY13 could help offset potential margin
compression from lower ad growth. We cut FY12e by ~7% and FY13/14e by 4-
5% to factor weak 2H and cut PO to Rs285.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Media & Entertainment - India
Growth rates likely to rebound
�� Accelerated growth in FY13E; Picks- Dish TV, DB Corp, ZEE
Media stocks have underperformed the Sensex by about 6% over the last three
months, led by concerns on lower ad growth. While we expect 2H FY12 to be
challenging, forecast ad growth to rebound in FY13E led by macro recovery & a
likely higher ad allocation to GEC genre from sports. We raise earnings & PO for
ZEE and have cut for DB Corp & Jagran to factor weak 2H. We expect earnings
to accelerate in FY13/14E and see upside of 13-54% for stocks under our
coverage. Prefer Dish TV (likely turnaround in profit & FCF), Zee (turn around in
ad growth) and DB Corp (accelerated ad rev growth led by market expansion). .
Ad spends likely to rebound in FY13E
While we factor in a likely weak 2H FY12, we believe ad spends in FY13 will
rebound given 1) a likely turnaround in macro in 2H FY13E, and 2) potential
higher allocation to the general entertainment channel (GEC) genre from sports
genre given lower number of cricket days in CY12 vs. CY11. Post 500bps yoy
increase in allocation to sports (21% share) during CY11E led by world cup, we
expect allocation to decline ~300bp next year aiding growth for non sports genres
especially GECs. We forecast spends for non sports genre to grow ~15% yoy in
CY12 vs. an estimated 4% growth in CY11E.
Risk-reward favorable : Dish TV & DB Corp stands out
While risk-reward remains favorable for stocks under our coverage, our analysis
indicates positive returns for Dish TV and DB Corp even in the worst case scenarios.
See could upside potential of ~7% for Dish TV and DB Corp under worst case. For
Dish TV, revenue model is largely subscription driven and should see limited impact
other than a higher churn in subscriber base; DB Corp should benefit from increasing
revenue contribution from recent launches (Maharashtra & Jharkhand).
Valuations: Unlikely to correct
While slowdown reminiscent of 2008, we believe valuations are unlikely to correct
to 2008 levels given that companies currently have much strong balance sheets
and financial metrics. For eg Net cash and equivalent for Zee now stands at
Rs11.1bn vs. Rs3.6bn in 2008. Also, companies in the sector we think have a
much better margin profile and return ratios compared to yr 2008.
Top picks
Dish TV: Less likely to be impacted by the macro slowdown given that nearly 85% of
its revenue comes from subscription. ARPU expansion remains on track. Dish
recently raised pricing for entry-level schemes by 6%. In the worst-case, we estimate
subscriber churn could increase to 14% over the next two to three years,
impacting EBITDA by about 10%. We see potential upside of 15% even in the
worst-case scenario. We believe recent stock correction led by concerns on
equity dilution provides a particularly good buying opportunity.
. Zee: Likely to benefit from a rebound in ad growth in FY13E led by a macro
recovery in 2H FY13E and a likely higher allocation to GEC given the lower
number of cricket days in FY13E. In the worst case, we expect ad revenue to
grow about 8% YoY in FY13, leading to 9% YoY growth in earnings. Margins are
likely to expand, led by increasing subscription revenue (about 42% of revenue)
and rebound in ad growth. Its balance sheet is much healthier vs. 2008 with cash
equivalent at Rs11.1bn and improved return ratios and margin profile. We raise
estimates ~3-4% to factor higher ad growth and raise PO to Rs145.
DB Corp: We expect accelerated ad growth over the next two years, led by: 1)
recovery in ad spends and 2) increasing contribution from its recent launches in
Jharkhand and Maharashtra. In the worst case, we expect ad growth of 10% YoY
during FY13E, led by 5% growth in national ads (40% of revenue) and about 12%
YoY growth in retail ad vs. estimated 6% and 19%, respectively, in FY12. A delay
in its Bihar launch plans beyond FY13 could help offset potential margin
compression from lower ad growth. We cut FY12e by ~7% and FY13/14e by 4-
5% to factor weak 2H and cut PO to Rs285.
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