Tariff order, consolidation to support rally in broadcasting stks: Analysts

New Delhi Television (NDTV), Dish TV, Sun TV Network, and Zee Entertainment outperformed the indices over the last six months by surging between 18 per cent and 95.5 per cent

Amendments to the new tariff order (NTO 2.0), coupled with sector consolidation, will likely keep broadcasting stocks on an uptrend in the near-term, analysts said.

Besides, potential recovery in ad-spends from the second half of the current financial year (H2FY23), as raw material cost softens for most advertisers, will likely aid financials in quarters ahead.

Over the past six months, the Nifty Media index has rallied 14 per cent on the National Stock Exchange (NSE). In comparison, the benchmark Nifty50 index has risen 19 per cent during the period, ACE Equity data shows.

Individually, New Delhi Television (NDTV), Dish TV, Sun TV Network, and Zee Entertainment outperformed the indices by surging between 18 per cent and 95.5 per cent.  

"Media stocks have been surging as the ZEE-Sony merger is nearing its finalisation stage. The merged entity will become a media behemoth, commanding about 30 per cent of the viewership market share," said Ashwin Patil, senior research analyst tracking the sector at LKP Securities.

The rally, he said, has more legs in the near-term as Gautam Adani has forayed in the space with the acquisition of NDTV. Reliance Industries chairman, Mukesh Ambani, already owns Den Networks, TV18 Broadcast, Hathway Cable & Datacom and Network18 Media (parent of Viacom18 Studios).

Increased content consumption via over-the-top (OTT) platforms, coupled with rising costs and weak advertising revenues during pandemic years, triggered consolidation in the sector. Operational synergies, analysts said, are expected to help companies protect revenue share.

According to Urmi Shah, research analyst at Samco Securities, recent mergers and acquisitions in the sector underline the need for inorganic growth and expansion to newer markets. Companies with deep pockets, she added, can promote original content, and lead the race catering to the varied and demanding crowd preferences.

Meanwhile, on the regulatory front, telecom regulatory authority of India (Trai) has amended the NTO 2.0 for the broadcasting industry. It has reversed the price cap on bouquet channels from Rs 12/month to Rs 19/month, and has allowed broadcasters to offer bouquet discounts of up to 45 per cent (from 33 per cent proposed earlier).

Analysts opine revision in the price cap takes away a material risk to subscription revenue estimates, and offers broadcasters room to balance price increase versus subscriber growth equation. The increased bouquet discount, however, is in-line with the current discounts offered and, thus, would not directly impact broadcasters’ revenues.

"Sun TV's leadership position in its core market and focus on content monetization has helped it outpace industry's subscription revenue growth. Its subscription revenues grew at 12 per cent CAGR over FY11-21 (pre-NTO 2.0 impact) versus 7 per cent growth for the industry over calendar years 2010-20. We therefore believe Sun TV is likely to benefit more from the amended regulations," said Abhishek Kumar of JM Financial.

The brokerage estimates 7 per cent domestic broadcasting subscription revenue CAGR for both Sun TV and Zee Entertainment over financial year 2023-25 (FY23-25) as against 0 per cent/-4 per cent growth over FY21-23.
 

Investment strategy

With most of the consolidation done, analysts suggest investors keep those companies on radar which are increasing their reach and expanding their business to put forward all kinds of content.

"Investors, however, should also be mindful of companies that end up investing heavily. Though these may yield positive results in the long run, the premium paid for such investments puts pressure on financials," said Shah of Samco Securities.

Patil of LKP Securities said current valuations offer an attractive entry point in ZEE as it will see long-term synergy benefits post the merger with Sony.

"Sun TV looks good too as it's gaining market share in South India, especially in the Telugu and Kannada market. Network18, TV18 Broadcast and NDTV, too, will see some upside as the positive sentiment will get brushed up on those stocks as well," he added.

JM Financial and Nuvama Institutional Equities have 'buy' ratings on ZEE/Sun TV with target prices of Rs 370/Rs 760 and Rs 371/Rs 642, respectively.