Media stocks to poll dance on higher ad spends

Markets are enthused about prospects of television, print media companies as these are likely to be biggest beneficiaries of increased ad-spend

Investors are mounting their bets on media companies, with elections round the corner and fast moving consumer goods (FMCG) companies raising their advertising expenditure.

Market participants are enthused about the prospects of television and print media companies, as these are likely to be the biggest beneficiaries of increased ad spend by FMCG companies and political parties in the run up to the elections in April.

“The increase in advertising and subscription revenue has been encouraging. As we are near the election period, there will be higher traction in media coverage. The impact will be much more immediate in the case of television media than print media,” said Kaushik Dani, head (equity), Peerless Mutual Fund.

Five legislative assembly elections will be held between this month and  December, seen as a warm-up to the national elections next year.

“Media companies have already seen a rise in revenue due to the increased ad spends by FMCG companies. Election coverage is likely to boost their revenues further,” said Alex Mathew, head of research, Geojit BNP Paribas Financial Services.

According to analysts, the FMCG industry’s ad expenditure touched a four-year high in the September quarter, contributing to higher revenue for media companies.

“This is clearly reflected in their performances, as the corporate earnings numbers of media companies has been better than what was expected. We are more bullish on TV media stocks, as we feel that with a wider reach, they are the higher beneficiaries of this increase in revenues coming from FMCG companies and election coverage” said Vivek Mahajan, head of research, Aditya Birla Money.

More, the benefits of digitisation of cable TV, which began two years ago, would slowly start reflecting on the balance sheets of these companies. Analysts said Phase-I and Phase-II had only led to the seeding of set-top boxes in homes; the revenue benefits were yet to be seen. Besides, implementation of both the phases had seen a delay of some months. “Subscriptions contribute 64 per cent of total TV revenue. However, most is retained by local cable operators, leading to a huge loss to industry. By industry estimates, subscriptions would contribute 48 per cent of total broadcasting revenue, compared with 36 per cent now. Such growth is backed by implementation of digitisation,” said a report by analyst Naval Seth of Emkay Global Financial Services.

Technical analysts said stocks such as Zee Entertainment could see further gains as foreign investors look for opportunities in value-buying. “Retail investors do not typically hold media stocks. Foreign investors, on the other hand, are looking to increase exposure in this sector, as some of these stocks look good from a six to nine-months perspective,” said Ashish Chaturmohta, head of technical and derivatives analysis, Fortune Equity Broking. Analysts say Zee Entertainment and Sun TV could see a further gain of eight to 10 per cent from current levels. Technical analysts are more bullish on print media stocks like Jagran Prakashan and DB Corp, and have maintained their ‘buy’ calls, with possible upsides of about 30 per cent and 16 per cent, respectively.