Improving growth outlook, strong ad revenue are positives for Zee, Sun TV

Advertising revenue growth expected to be a strong 20% in March quarter and 14% in CY18

Strong advertising growth in the March quarter and an improving outlook for 2018 should aid the revenue growth of Zee Entertainment, the largest listed media company, and Sun TV, which dominates the viewership in South India, especially Tamil Nadu.
 
This, coupled with rising viewership, will help Zee outperform its peers. It posted an overall network viewership growth of 220 basis points (bps) year-on-year (y-o-y) in February to 26.2 per cent, on the back of a strong showing in the Hindi general entertainment segment (GEC) and the Tamil genre.
 
While the company’s share in the Hindi genre stood at 24.6 per cent, up 370 bps y-o-y, the Tamil genre reported a share of 18.5 per cent, up 510 bps y-o-y. Sun TV’s viewership was steady in the Karnataka and Telugu markets; it lost share in the Tamil genre but overall share in Tamil Nadu continues to be over 50 per cent.
 
Given the overall viewership gain, analysts at Kotak Institutional Equities expect Zee and Sun TV to post 20 per cent y-o-y advertising growth each in the March quarter. Further, the brokerage expects Zee to outperform its peers for at least two to three quarters. While Sun is maintaining its lead in the Tamil Nadu market, some brokerages are cautious on the stock, given the increasing competition.
 

Overall television ad revenue growth for the broadcast space is also expected to be robust. After growing 10 per cent in 2017, the advertising market is expected to grow 14 per cent this year, according to a Ficci-EY report. The muted growth in 2017 was on account of demonetisation and goods and services tax (GST) introduction.
 
This, coupled with 10 per cent growth in the subscription space, will help the sector grow its overall revenue by 13 per cent.

Monetising the digital content space through Over The Top applications could become a significant contributor. What should also help is secular trend in television penetration, which grew from 54 per cent in 2013 to 64 per cent in 2017, with average daily television viewing time expected to improve.
 
Most brokerages are positive on the Zee Entertainment and Sun TV stocks, trading at 28 times and 21 times their respective FY20 earnings estimate.