Media - Sector Update - Ad growth under pressure : Centrum

Ad growth under pressure



We expect Q1FY15 results to be subdued for media companies with
advertisement growth in single digits. Election benefits will not flow
in for print companies but economic slowdown could impact
broadcasters. Subscription and circulation revenues are also expected
to moderate during the quarter. However, we expect gross addition to
be healthy for Dish TV and predict healthy revenue growth for internet
players. Operating margins for our coverage universe will be under
pressure on the back of lower topline growth.

$ Ad revenue to be under pressure: Subdued macro environment coupled
with high base will impact ad growth in the quarter. Benefit from
elections led advertisements will be offset by the blackout of
Government advertisement due to the election code of conduct for print
& radio companies. Jagran, DB Corp and HT Media are expected to post
~8-9% ad growth in the quarter with English print continuing to be
under pressure. High base will impact Sun TV and hence we have
modelled merely 1% growth, while ZEEL could post 14% ad growth. ENIL
may report 9% YoY ad growth on the back of high inventory utilisation
and inability to improve yields.

$ Circulation & subscription revenue growth to moderate: Circulation
revenue growth for print players will moderate with DB Corp and HT
Media each growing at ~10-11% and Jagran by 4% on the back of marginal
price hikes during the year. The impact of cuts in cover price in
Bihar market will be felt by both HT Media and Jagran. On the back of
high base, benefits of digitization in Phase-I/II in the system and
closure of MediaPro JV, ZEEL is expected to report ~9% growth in
domestic subscription revenues while Sun TV is likely to grow analog
subscription revenues by 27% and DTH by 17% YoY. Dish TV’s gross
subscriber addition is expected to be at 0.5mn while ARPU remains flat
sequentially at Rs170.

$ Operating margins to be under pressure: With revenues under
pressure, operating margins are expected to compress by 148bps YoY for
our coverage companies. Broadcasters like Sun TV and ZEEL’s OPM will
compress due to lower ad growth and high programming cost. However, DB
Corp’s margins are set to decline by 267bps due to high RM cost and
impact of Bihar launch. Jagran will post flat margins while HT Media’s
margin will expend by 67bps with traction in Hindi business. High A&P
expenses will impact Just Dial while strong operating leverage will
help Info Edge expand margins by 255bps. Hence, operating profit for
our coverage universe is set to grow by mere 5.2% YoY and PAT by 4.3%
YoY.

$ Recommendation & key risks: We continue to prefer Jagran Prakashan
among print companies and maintain our recommendation to switch to Sun
TV from ZEEL as we believe margins for ZEEL would be under pressure on
new channel launches while Sun TV will benefit significantly from
digitization. Among internet companies we suggest a switch from Just
Dial to Info Edge as we believe the transaction driven business model
of Just Dial will need significant investment. We maintain Buy rating
on Jagran Prakashan, DB Corp, Sun TV Network, HT Media, Info Edge,
Dish TV but Hold on ENIL, ZEEL and Just Dial. Key risks to our call
will be 1) Continuing economic slowdown, and 2) Delay in digitization.



Thanks & Regards

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