Media Sector Q3FY19 Preview – Healthy revenue growth across companies; margin prospects – A mix bag.
We expect Q3FY19 to be healthy for most of the media companies led by seasonality due to festive season and increased Govt. ad spends led by elections.
TV segment and exhibition are expected to outperform due to better ad. Growth prospects and healthy Box Office revenue growth respectively.
The radio segment has witnessed good recovery in this quarter led by festive season and Govt. ad spends; we expect this traction to continue up to Q1FY20.
We have estimated 18%YoY revenue growth for our media universe where TV and exhibitors lead in terms of performance.
EBITDA margin performance is a mixed bag as both exhibitors and selective radio companies are expected to do well, whereas margin headwind persists in the TV segment due to higher investment in digital.
TV segment – Healthy ad. Growth prospects; Zee continues to outperform on advertising revenue vs Sun.
We expect ZEE to report a healthy overall performance with 13%/18% ad/subs revenue growth led by a strong performance in regional genre.
Sun is expected to outperform on the subs revenue growth front led by positive impact of digitization on the Tamil Nadu; however ad revenue growth will be muted at 6%YoY due to no major signs of improved viewership in the Tamil genre.
Sun life, the new GEC offering by Sun TV continues to attract eyeballs, though the ad. Pricing on the same remains to be at a steep discount.
We expect a decline in the EBITDA margin for both Zee and Sun as headwinds persist in the form of increased investment in content on digital, the quantum of margin decline will be higher in the case of Sun as they move towards a commission based model for its TV programs.
Movie Exhibition segment – Healthy BO revenue growth due to strong Hindi / Regional movie performance.
Exhibitors are estimated to report healthy box office collection despite a high base as Hindi BO collections have grown 15%YoY to Rs 940cr helped by success of movies like Badhaai Ho, Andhadhun, Robot 2.0 and Simmba;
further, regional content too has been strong due to the success of movies like Sarkar, Robot 2.0 and KGF which too has had a positive impact on Box Office revenues.
PVR and Inox are estimated to report similar BO revenue growth, however including SPI, PVR will report a big outperformance. Ex SPI, PVR is estimated to underperform vs Inox on ad. Growth front due to premium pricing of the former. On SPH front, Inox is expected to report a better performance due to lower discounting vs PVR post the F&B order, as both exhibitors have offered discounts / promotions to raise consumer sentiment.
Radio – Growth trajectory largely back on track; ENIL outperforms on revenue growth front.
ENIL is expected to outperform vs MBL by a big margin due to surge in Govt. ad. Spends and strong growth in the radio and non-radio business; both the players are expected to report strong inventory led growth as pricing remains largely flattish YoY. ENIL also has had a huge boost on revenue growth front led by two recent concerts in its non-radio business. On the margin front, MBL is expected to outperform vs ENIL led by better profitability in the newer stations (first batch of Phase-3) whereas headwinds persist for ENIL’s margin in the form of lower margin in non-radio segment (new concerts this quarter) and losses in the new stations (second batch of Phase-3).
Digital Content – Strong double-digit growth in the digital segment
We expect SHEM to report revenue growth of 18% YoY led by out performance in digital media segment. The consumption of digital content is increasing due to cheap mobile data plans which will help SHEM to witness better revenue growth going ahead; revenue from YouTube in the digital segment is expected to remain weak; however as per our channel checks in the industry, the YouTube segment is expected to recover over the next 8-10 months. Further, SHEM has also indicated of launching its own OTT offering ShemarooMe which will have a positive impact on the digital segment revenue in the medium term.
Integrators – Weakness in D Cinema continues to impact overall performance
UFO Moviez is expected to report revenue growth of 2% YoY primarily led by ad. revenue which is estimated to grow 15%YoY, which will also support margins. E cinema revenue continues to report flattish growth whereas D-cinema is weak due to sunset clause with Hollywood studios.
We like the exhibition segment within media sector on the back of strong Hindi content pipeline which will drive BO revenue growth in the near term; we also prefer the radio segment only in the near term ( 6 – 9 months ) as it is poised to report double-digit revenue growth led by surge in Govt. ad. spends (due to elections) towards the end of FY19; however, structural challenges persist the radio space due to listenership moving towards digital & delayed implementation of MRUC which will negatively impact future pricing growth. Within the TV space, we prefer ZEE over Sun primarily in anticipation of strong growth in its r hiegional portfolio ( Marathi, Telugu, Bhojpuri & Tamil ); we believe tie up with a strategic partner will only help in a positive way as it will lead to scalability of the ZEE5 platform & also enable better monetisation of the Zee’s massive content library globally. Sun TV still has to undergo a lot of changes as it does not own IPR of most of its content which negatively impacts the depth of content offering in its digital platform – Sun NXT. Our preferred picks in the media sector are Inox/ZEE/ENIL in the pecking order.
This article is only of listed Companies
Karan Taurani @ Elara Capital