Broadcasters to see strong revenue growth on improving demand, lower costs.
After a muted CY09, when growth rates came down to single-digits on the back of lower advertising revenues, the Indian broadcasting sector is expected to bounce back and post double-digit growth over the next five years. Most broadcasters registered a growth in sales and profitability in the March quarter and with advertising and subscription revenues going up, expect further improvement in margins and profitability. What will aid profitability for broadcasters is that their carriage, placement and programming costs are also likely to remain under control.
Higher demand, firm ad rates
The largest contributor to the ad revenues of broadcasters is the FMCG (fast moving consumer goods) sector, accounting for nearly half of television spending. As the FMCG sector is expected to grow by 15-20 per cent over the next year and considering the fierce competition for market share at national and regional levels, analysts expect ad spends to be 11-15 per cent of sales for major FMCG companies. All this will mean higher ad volume growth, with rates expected to grow by about 15 per cent.
Increase in subscription pie
Broadcasters are expected to benefit from the growth in digitisation and DTH installations. From about 32 million DTH subscribers, the base is likely to double by 2012-13, helping broadcasters to increase their market share from 18 per cent to 27 per cent by 2014. Subscription revenues are likely to grow by 24 per cent annually, as compared to growth of 15 per cent from advertising.
We look at the growth prospects for some key players:
Zee Entertainment
Zee recorded a 26 per cent year-on-year growth in revenues for the March quarter to Rs 649 crore, of which ad revenues came in at Rs 351 crore. However, the figures for the quarter are not comparable with the year-ago quarter, due to the addition of the regional general entertainment business to revenues.
Ebitda (earnings before interest, taxes, depreciation and amortisation) margins expanded by 490 basis points year-on-year, to 28 per cent. UBS analysts believe the company will be the beneficiary of increasing cable TV digitisation, which will lead to increase in subscriber reporting by cable operators, helping improve revenues. As new advertising slots are being sold at higher rates, expect ad revenues to move up as well. At current levels, the stock is expected to give about 20 per cent returns over the next year.
| ROAD TO HIGHER PROFITS | |||||||
| In Rs cr | Sales | % chg | Ebitda | % chg | PAT | % chg | P/E (x) |
| Sun TV | 1,805 | 24 | 1,384 | 27 | 692 | 33 | 24 |
| NDTV | 338 | 11.0 | 33.0 | 43.0 | -40.0 | – | – |
| TV Today | 311 | 12 | 87 | 21 | 59 | 18 | 9 |
| Television 18 | 728 | 31.8 | 119.0 | 363.0 | 17.0 |
– | |
Sun TV
The company recorded strong growth in both advertising and subscription revenues for the March quarter and has been able to bring down the losses in its radio business. Due to this, revenues increased 42 per cent, while net profits increased 45 per cent, to Rs 391 crore and Rs 165 crore, respectively. Strong demand from FMCGs and local advertisers saw the company increasing rates in January of this year and, going ahead, Centrum Research estimates that ad rates will grow at 21 and 19 per cent, respectively, for 2010-11 and 2011-12. The stock, however, already discounts part of the expected gains and investors may buy on dips.
NDTV
Softness in ad revenues and stiff competition resulted in the company reporting a three per cent fall in revenues for the March quarter. The management has said lower revenues from events due to higher production costs led to the fall. On the positive side, the company reported a strong 20 per cent year-on-year growth in subscription revenues. The key issue is that the English, Hindi and Business news has tough competition that is eating into its share; it may be tough for the company to maintain its premium ad rates. M F Global analysts believe performance in the medium term will depend on the growth in subscription revenues from DTH. Avoid for now.
Television Eighteen
The company’s revenues grew 20 per cent in the March quarter, on the back of a 78 per cent increase in its Infomedia (print) business, as well as growth in its web and newswire businesses. The company reported profit at the Ebitda level as against a loss in the year ago-quarter, due to cost control measures and merger of its logistics, back-end and broadcasting operations of CNBC TV18 and Awaaz. Given its leadership in the news business, as well as growth in the publishing and internet ones, expect the company to turn out robust revenues. However, given the valuations, investors are advised to buy on dips.
