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The Media sector’s ROEs have improved significantly, from 12-13%
in FY03-04 to ~20% levels at present. A look at the different Dupont
factors reveals that this has been driven primarily by a steady
growth in margins. The low capital intensity of the sector has also
aided steady growth in cash balance and non-operating income.
Broadcasting companies have enjoyed exceptional buoyancy in the
Indian Media space over the past decade. Companies enjoying
strong franchises have seen ad revenues growing steadily at ~15%
annually over this period, barring the recession-led blip in FY09.
Regional ad spends remained steady even during the recession. On
the other hand, subscription revenues have gained momentum over
the last 3-4 years with the DTH explosion in the country. In a period
that has seen competitive intensity increase significantly as well, the
strength and increasing diversity in revenues has enabled leading
companies tide over inflation in programming costs and personnel
expenses and improve margins.
Print-media companies are a direct reflection of the growth in India’s
regional economies. The direct beneficiaries of this growth have been
national level print media companies who have been able to expand
significantly at relatively little expense, largely on the back of the
buoyancy in their legacy markets. Expansion in the print media
business is not asset-intensive, but costs do increase with
circulation. And abundance of high-growth markets has allowed the
leading companies to largely stay off each other’s key territories. Coincidence
of an adverse newsprint cycle and a slowdown in print ad
spends in the urban markets did result in a drop in margins in FY09,
especially for HT Media. But this has proved to be transient, with the
exceptional pick-up in ad spends thereafter and a far more benign
newsprint environment.
Going forward, we see all the major margin levers remaining fairly
favourable. Ad spends in the regional markets should comfortably
maintain a high-teens growth rate over the next year. Although we
expect a marginal slowdown in television ad spends in 2HFY12, the
buoyancy in the DTH space should still boost revenue growth and aid
margin improvement.
The absence of non-operating distortions increases visibility on the
sector’s earnings. All the major media companies are flush with cash.
Moreover, they have been paying marginal tax rates and thus we see
the non-operating effect on profits playing out positively, going
forward. With no fund issuances likely to dilute earnings, we see
ROEs maintaining a steady trajectory upward.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Media sector’s ROEs have improved significantly, from 12-13%
in FY03-04 to ~20% levels at present. A look at the different Dupont
factors reveals that this has been driven primarily by a steady
growth in margins. The low capital intensity of the sector has also
aided steady growth in cash balance and non-operating income.
Broadcasting companies have enjoyed exceptional buoyancy in the
Indian Media space over the past decade. Companies enjoying
strong franchises have seen ad revenues growing steadily at ~15%
annually over this period, barring the recession-led blip in FY09.
Regional ad spends remained steady even during the recession. On
the other hand, subscription revenues have gained momentum over
the last 3-4 years with the DTH explosion in the country. In a period
that has seen competitive intensity increase significantly as well, the
strength and increasing diversity in revenues has enabled leading
companies tide over inflation in programming costs and personnel
expenses and improve margins.
Print-media companies are a direct reflection of the growth in India’s
regional economies. The direct beneficiaries of this growth have been
national level print media companies who have been able to expand
significantly at relatively little expense, largely on the back of the
buoyancy in their legacy markets. Expansion in the print media
business is not asset-intensive, but costs do increase with
circulation. And abundance of high-growth markets has allowed the
leading companies to largely stay off each other’s key territories. Coincidence
of an adverse newsprint cycle and a slowdown in print ad
spends in the urban markets did result in a drop in margins in FY09,
especially for HT Media. But this has proved to be transient, with the
exceptional pick-up in ad spends thereafter and a far more benign
newsprint environment.
Going forward, we see all the major margin levers remaining fairly
favourable. Ad spends in the regional markets should comfortably
maintain a high-teens growth rate over the next year. Although we
expect a marginal slowdown in television ad spends in 2HFY12, the
buoyancy in the DTH space should still boost revenue growth and aid
margin improvement.
The absence of non-operating distortions increases visibility on the
sector’s earnings. All the major media companies are flush with cash.
Moreover, they have been paying marginal tax rates and thus we see
the non-operating effect on profits playing out positively, going
forward. With no fund issuances likely to dilute earnings, we see
ROEs maintaining a steady trajectory upward.
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