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INDIA MEDIA INDUSTRY
Riding on two key macroeconomic factors, growth in consumption and
increasing penetration of media, the Indian media industry is set to grow at
a strong pace through the next decade and beyond. We build a case for 15%
CAGR growth in Indian adex and Indian (broadcasting) subscription revenue
growth of 16% CAGR. We believe that sector-level growth will be
moderated at company-level by forces of inter-industry as well as value
chain competition, which would place limitations on assumptions of value -
creation that can be made in financial models. We zero-down on two critical
qualitative factors that enable assumption of industry/ super-industry
growth among media companies - monetization of assets (readership/
viewership), and bargaining power within the value chain - to pick potential
long-term outperformers within the space. We conclude that HT Media and
Sun TV Network are among the best positioned companies on these counts
and rate them BUY. While monetization theme remains strong in the case of
Jagran Prakashan and DB Corp, we find valuations of these incorporating
significant upsides. Monetization is also a strong theme in the case of
IBN18, but risks are high in the company's execution of future plans. We
initiate on Jagran Prakashan, DB Corp, and IBN 18 with ACCUMULATE rating.
We initiate on ZEEL with a REDUCE rating as we think the competitive
position of the company is weak in relation to valuation enjoyed.
1. Industry Topline Growth To Rescale Highs
Topline growth in both broadcasting and print spaces will remain strong. Growth in
advertising revenues is well under way, as indicated by recent financial results and
management comments. Strong GDP growth, along with improving consumption
growth, shall see advertising expenses re-scale old highs. As consumption growth
strengthens, we believe India is set for a long-term adex growth of 14-15%. We
believe print adex, as has been shown by historical growth rates, is likely to grow at
a rates similar to broadcasters.
Subscription revenues among television broadcasters are likely to remain on a high
growth trajectory, as a result of value chain reorganizations, as well as rising digitization and higher C&S television penetration. We believe broadcasters shall register
long-term growth rates of 16% CAGR for the next ten years. We note that print
players shall register poor growth in circulation revenues as a result of intensifying
competition.
2.Competition a key factor - Monetization a Key Theme
Over the past few years, competition within industry has increased meaningfully.
While there have been significant readership/ viewership acquisitions in the past few
years by new entrants, challenger's models have typically been poorly monetized
relative to the incumbent. The monetization of challengers shall happen, to a significant extent, at the cost of the incumbent, and shall alter significantly, the growth
profiles of industry players.
Although regional television channels enjoy viewership numbers of mainline Hindi
GECs, they do not enjoy subscription revenues that are in line with Hindi GEC players. We believe that this is likely to change in the future, benefiting under-monetized players. Sun TV Network, with an all-regional bouquet and lower subscription
revenues than Hindi peers, is one such play. We also find that IBN18's mass entertainment channels bring in poor subscription revenues relative to peer Zee Entertainment, which provides basis for the stance that subscription revenues of the company
could rise sharply, and provide upsides.
Among newspaper publishers too, monetization is a significant theme. Most publishers have expanded into new territories with significant spends in building up circulation and readership. Broad indicators show, for example, that a few of HT Media's
newspapers (Hindustan, HT-Mumbai, Mint) are under-monetized relative to peers.
With strong trends in readership, we think there is reason to believe the monetization will occur over time. This is the key reason for our bullish stance on HT Media.
ZEEL's long history has enabled to develop strong subscription revenue streams. In
time, as competition rises (and if average payments from cable homes do not rise),
the company could see stagnation in a large part of its revenue pie. This is among
our reasons for our non-sanguine stance on ZEEL.
3. Value Chain Key Determinant of Value Creation - Industry Concentration, Bargaining Power Key Indicators of Long-Term Performance
Three key participants in broadcasters' value chain - media buyer, content provider
(for content - aggregating entertainment channels), and distribution partners - enjoy
high bargaining power in the scenario when number of channels has run up to over
500. The value chain of broadcasters is complex, and, with high competition, players
will, as they have already, see escalating expenses on account of distribution/ content. We find that Sun TV is the only broadcaster positioned strongly in its value
chain. Sun TV's markets are, in general, more concentrated than peers IBN18 and
Zee Entertainment; Sun TV has greater exposure to the local media buyer (thus
lower concentration at media buyer's end); Sun TV has significant say in distribution
in certain areas - due to promoters' interests in distribution.
Print players are less dependent on value chain partners - advertising revenue
streams are better diversified among categories; newspapers typically compete with
only 2-3 players within each city, and typically have a brand stickiness that is rare to
find among broadcasters. Newsprint (key raw material for newspapers), however,
remains a cyclical commodity that newspaper publishers' earnings are exposed to.
Even so, we think that newsprint prices, affected thus far by sudden spike in price of
raw materials (pulp) caused due to a natural calamity; have been factored well into
estimates. We believe that newspaper publishers are, in general, in a greater possession of control on their value chains.
4. Growth Profiles of companies reflect our beliefs, HT Media and
Sun TV top picks in the space.
5. Valuations Reasonable, But Advice Selective Approach
We believe that media's strong long-term story shall be manifest in players with two
characteristics: 1/ under-monetized media assets (readership/ viewership), and 2/
strong bargaining power, helped by factors such as strong industry concentration,
control over distribution, diversified media buyer base, and leading position. We contend that in stocks that carry these characteristics, predictability of the flow-through
of the macro story grows strong and upsides to industry growth may exist. As such,
these stocks are stronger candidates for buying into the media story of India. A summary of valuation/ financial parameters, along with our recommendations, is provided in the table below:
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