Media sector to have a moderate start this year

After a robust Q4 FY14 thanks to election spends on advertising across platforms, media entities may see slightly lower ad revenue growth

While it ended FY14 on a high, the media sector is expected to get off to a moderate start this financial year. After a robust Q4 FY14, thanks to election spends on advertising across platforms, media entities might see slightly lower ad revenue growth at 12 to 14 per cent.

In case of advertising on television and print media, the ad revenues were impacted by the model code of conduct coming into force in the run-up to the elections.

Motilal Oswal predicts, “We expect double digit ad revenue growth of 11-16 per cent for all media companies barring Sun TV, which has been impacted by the YoY correction in the ad inventory and market share loss. While ad growth is expected to be particularly strong at Rs 16 per cent for Zee, growth momentum is also likely to remain healthy (9 per cent - 13 per cent) for print despite impact of lower government spends due to model code of conduct pre-election.”

Television on the other hand, is expected to register a growth of 10 to 11 per cent in advertising revenues. This comes mainly on the back of the launch of new channels and properties, adding to the total ad inventory up for sale. An example of this can be seen in Zee Entertainment Enterprises Limited, which launched its new general entertainment channel ‘Zee Zindagi’.

In case of print, growth is expected to remain flat on account of margin contraction for regional newspapers, while English publications might see a decline in earnings.

However, the cost of launching the channels and the increase in depreciation is expected to cause a decline in the EBITDA reported by media companies in Q1 FY15. The cable operators are also expected to witness lower EBITDA and reduced margins since the realisation from Phase Two of digitsation is lower than expected. Some of this is offset by the returns gained from Phase One, but they are not enough to balance the investments put in by the companies for the consequent phases of digitsation, hence the impacting margins.

Costs for cable and DTH players are also expected to go up as they look forward to seeding of set-top boxes for Phase Three of digitisation. However, there is no clarity yet on whether the industry is on track to keep the September 30 deadline for the same, in which case, margins will continue to be under pressure as money from the customers will take a while to come in.

Exhibition houses like PVR Ltd are set to see muted growth in the quarter, thanks to a lack-lustre performance at the box office. Due to elections and the Indian Premier League, not many big ticket movies were released, barring a few like 2 States, Holiday and Ek Villian.

“Last year in June, Ye Jawaani Hai Deewani was released at this time and grossed more than INR 1.9 bn. Hence, in spite of ‘Holiday’ doing well, YoY performance in June was down for PVR. PVR will amortise Rs INR 100 mn every year for the next nine years due to Cinemax's amalgamation, which will slightly dent profitability in Q1FY15. In sum, Q1FY15 performance will be lower-than-earlier expectations,” opines Abnessh Roy, Associate Director, Institutional Equities – Research.

With a slate of big ticket movies scheduled for this quarter and the next, box office performance is expected to pick up.

For the coming quarters, analysts maintain a positive outlook for the sector, with returns from digitsation and implementation of the Telecom Regulatory Authority of India’s mandatory tariff hike.