Strong ad revenue growth to continue for Zee, Sun TV

Performance in the second half of FY16 expected to be as good as in first half for media sector

The media sector stood out in the September quarter, reporting the highest net profit growth of 45 per cent across sectors. In fact, it is the only sector reporting a 40-per-cent-plus net profit growth in the first half of FY16 and, more importantly, is expected to repeat the performance in the second half of FY16, according to estimates of Motilal Oswal Securities. This comes at a time when India Inc has seen a third consecutive quarter of revenue and profit contraction, according to Edelweiss Securities.  

While most analysts had pegged net profit growth for the top media companies at 30 per cent year-on-year, the aggregate profit came in much higher. In addition to subscriber additions, media growth was driven by strong advertising revenue growth of Zee Entertainment Enterprises, Sun TV, and Hindustan Media Ventures, and operating efficiency of Dish TV.

While revenue and operating profit growth at 13-15 per cent year-on-year were broadly in line with estimates, net profit growth was higher due to strong showing of Zee, Sun TV, and Dish TV. While net profit growth of Zee and Sun TV was 27-41 per cent higher than a year ago, Dish TV posted a profit as against a loss in the year-ago quarter.

  Revenue was driven by advertising. For Zee, advertising revenue growth at nearly 35 per cent year-on-year was the highest in at least four years and has been steadily rising from the low of 7.5 per cent a year ago. Excluding the &TV channel launched this year, advertising revenue growth was still strong at 26 per cent. Analysts at Macquarie say the 30 per cent advertising revenue growth in the first half of FY16 at Zee was due to advertising spend by FMCG (fast-moving consumer goods) and e-commerce companies.

In the near term, improved market share in regional channels and higher telecom ad spends will drive ad growth for Zee, say analysts at Emkay Global.

For Sun TV, revenue growth was driven by a 16 per cent increase in advertising revenues. While operational performance and lower tax outgo contributed to Zee's net profit growth, in Sun's case, lower movie amortisation costs helped. (Amortisation is the paying off of debt with a fixed repayment schedule over a period of time.)

Dish TV's revenues got a boost from strong net subscriber additions. Lower content costs and other expenses saw margins expand 938 basis points and operating profit rise 57 per cent. This helped Dish report a net profit of Rs 87 crore as against a loss of Rs 14.2 crore in the year-ago quarter.