 "Sun TV, Dish TV and Zee TV top picks in the media space: Credit Suisse")
The industry is going through a once-in-a-lifetime transformation in the form of digitisation, which will have a significant implication. In this backdrop, both television broadcasters as well as the service providers are likely to benefit, the report says.
The foreign brokerage firm suggests that the broadcasters will benefit as the FMCG sector, which is likely to see a strong gross margin expansion in FY14, will support ad revenues and hence the advertisement revenues will grow in FY14. "Although subscription benefits may be muted in FY14, over the next 2-3 years they will be a big driver of broadcaster earnings (especially profits given no extra costs)," the report says.
Stock picks
Analysts at Credit Suisse prefer Sun TV, which has a strong presence in the south. Sun will be able to better monetise it’s content, evident from its DTH ARPU (average revenues per user) which is almost two times that of Zee, the report says. Though their analysts maintain an OUTPERFORM rating on both Sun TV and Zee TV, Sun TV remains a preferred pick in this space given that the stock trades at 30 per cent discount to Zee TV. They see a 34 per cent upside potential for Sun TV while 16 percent for Zee TV.
Among the Service providers direct to home (DTH) service providers are preferred over multi-system operators (MSOs). This is because there is not enough clarity on revenue sharing between the multiple-system operators (MSOs) and the local cable operators (LCOs). Thus, the research house feels that once the advantage of analog cable, i.e. lower taxes and content costs, goes away, LCOs will be forced to hike prices. Hence DTH companies will also get a leeway to raise tariffs.
Unlike DTH, the MSOs need to share revenues with LCOs and hence have a higher profitability on a per-subscriber basis. Thus while Hathway is likely to underperform (likely 12 percent downside potential) The research house maintains OUTPERFORM on Dish TV (24 percent potential upside).