Media Stocks – Dasvidaniya, Good Times!
November 24, 2008 by FSJ
If the M & E sector’s corporate results for the quarter ended September 2008 are any- thing to go by, then, companies seem to have bid farewell to any vestige of comfort for the industry.
Reputed brokerage Sharekhan analyses some of the Q2FY08 media results as follows:
Television Eighteen:
Reported a net loss of Rs. 27.95 crore in the second quarter as against net profit of Rs. 3.88 crore in the same quarter last year. The weak trend in the revenue growth of the core broadcasting operations (news business) was visible in the quarter’s results. Also the operating expenses shot up for the news business in the wake of heightened competition. The operating expenses in Internet operations (Web18) surged up drastically with the launch of horizontal portal in.com. Thus, the losses in Web18 have increased substantially.
We believe TV18’s news revenue growth will remain under severe pressure with squeeze in advertising spends by the corporates in general and specifically by the banking and financial services industry, which is facing tough times. Also, with the revenues of the existing pillars like moneycontrol.com under pressure and the gestation losses from new websites especially in.com, Web18 would report substantial losses for the year, severely affecting the overall profitability of the company. With the group’s business plan with the Jagran group already halted, we believe the company’s other print ventures i.e. English business daily and magazine with Forbes will see considerable delays.
Balaji Telefilms Ltd. (BTL):
Revenue growth was ahead of our expectation as realisations in the commissioned programming segment turned out to be better than expected. However, the operating margin slumped from 42.4% to 22.3% in Q2FY2009 due to closure of high-margin shows, content portfolio domination by new shows (that have lower margins) and high spend on Mahabharat. BTL’s key shows, Kahaani Ghar Ghar Kii and Kyunki… Saas Bhi Kabhi Bahu Thi…, went off air in October-November 2008. We believe this would lead to a sharp decline in the margins in the coming quarters and we estimate the earnings to go down by 26% YoY for FY2009. Thus, we believe the stock would underperform the benchmark indices and hence we have discontinued our coverage on the stock.
Sharekhan’s outlook for the media sector:
We believe the media industry, on the whole, is about to witness serious growth concerns: as advertisers tighten their advertising spends. In Q2FY2009, advertising spends by FMCG companies showed a relatively low YoY growth. Also, a slower growth in the revenues of these companies (as risks to volume growth have increased and some categories will see price cuts) may lead to rationalisation of advertising spends (FMCG industry accounts for 45% of the overall advertising market). Bad shape of banking, financial services and insurance, IT, real estate and automobile industries also signifies much lower advertising spends.
Also, the increasing competition and fragmentation of viewership across media platforms apart from aggravating pressure on advertisement rates have led to a substantial increase in costs. Thus, we believe the growth and the profitability for most media and entertainment companies are going to be under severe pressure in the coming quarters. We believe that Zee News presents a better investment proposition with a balanced business model in place and thus remains our top pick in the sector.
We summarise below the Q2 results of some more M & E sector companies:
Prime Focus: Has announced its second quarter results. The company’s net sales were at Rs. 23.3 crore versus Rs. 23.2 crore. Its other income was at Rs. 2.4 crore versus Rs. 93 lakh. The company’s operating profit was at Rs. 11.8 crore versus Rs. 14 crore. Its net profit was at Rs. 5.8 crore versus Rs. 8.9 crore YoY.
Sun TV Network Ltd.: Has posted a net profit of Rs. 1,083.10 miilion for the quarter ended September 30, 2008 as compared to Rs. 801.60 million for the quarter ended September 30, 2007. The total income has increased from Rs. 2,117.60 miilion for the quarter ended September 30, 2007 to Rs. 2,750.30 million for the quarter ended September 30, 2008.
NDTV: Q2 net loss widened to Rs. 119.38 crore for the quarter ended September 30 as against a net loss after tax of Rs. 25.27 crore in the year-ago quarter. NDTV said that it has embarked upon a cost-cutting and rationalisation exercise in its news business and expects advertisement revenue growth to slow down. Its board has decided to split NDTV into two groups – one, to carry out news and other businesses, and the second, for the entertainment and allied businesses. Noting that staying out of debt and having adequate cash reserves was critical in the current market scenario, NDTV said it has Rs. 660 crore of cash to meet business expense needs.
Entertainment Network (ENIL): Net sales were at Rs. 109.57 crore. Its net loss was of Rs. 18.21 crore. Radio business grew by 41% in Q2, YoY basis. Radio business turnover is Rs. 200 crore. There’s a slow- down in radio industry as against Q1 when it had grown by 51%. Radio Mirchi business grew by 15%, EBIDTA grew by 3%. Revenue and EBIDTA margin will remain under pressure. Capacity utilisation of 60-65%, Q2 was weakest quarter, so 65% capacity utilisation was good. Market shares retained at 44%, which were same as in the last quarter. Reported income growth of 40%, QoQ. 24 stations were operational as on September ’08. Company took 15% rate hike in festive season.
Stock-market overview: It was a one-way down-street, barring the last day, this week. The US stock markets fell 5% seamlessly (very much like some big companies going bust in the US) on each of the last two days of the week to a new six-year low, and global markets followed suit. Crude Oil has slumped from a high of $147 a barrel in July 2008 to a 3.5 year low of just $50 per barrel today! Inflation is below 9% in India, which is expected to register a GDP growth of at least 5 to 6% going ahead even as the UK/US and European countries may show negative GDP growth.
But, the massive selling of shares worth Rs. 53,000 crore by Foreign Institutional Investors (FIIs) this year (till date) on the Indian bourses and widespread fears of a long and painful global recession in 2009-10 have overshadowed the positives of the Indian economy. Wait and watch is the theme of the day, except for the truly brave-heart long-term investors who can buy good companies at sharp dips, in a piecemeal manner, with a resolve to ignore the day-to-day gyrations of the stock prices. They may make fair gains 2-3 years from now, as a reward for their guts!
- J N Mamtora
mamtorajn@yahoo.co.in
(The writer is a B. Tech from IIT, and MBA from IIM, Ahmedabad.)
Issue dated Nov 23 – 29, 2008
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