Media Stocks – Raaz of the quarterly…
January 27, 2009 by FSJ
…workings of companies in the entertainment and media sector continue to be the yet-to-be-unravelled mystery for investors, as of now. It is the endeavour of equity analysts to do some crystal-ball gazing into the likely workings of media companies for the quarter ended December 2008.
In the first half, we present the media sector Q3FY09 preview by well-known brokerage,
Sharekhan:
Media: Slowdown in ad spends, rise in costs to hurt.
Q3 to be hit by cut in ad spends and higher costs: We expect Q3FY2009 to be a bad quarter for most media companies, as the rate of y-o-y growth in the revenues is expected to taper substantially in the wake of significant cut in ad spends from key sectors such as banking, financial services and insurance (BFSI), real estate and automobiles. Also, a general sense of rational ad spend (bang for the buck) and fragmentation across media verticals due to increase in competition would lead to a slower revenue growth. Consequently, as the revenue growth lags behind the increase in costs, we expect media and entertainment companies to report subdued earnings for the quarter.
Zee News: New launch Zee Tamil to affect y-o-y profitability: The portfolio of channels owned by Zee News delivered a good performance in Q3, with all channels either maintaining or improving their market share and ratings. Zee Business, Zee Telugu and Zee Kannada have been the star performers with their market shares in the respective genres improving from ~15%, ~8% and ~6% to ~20%, ~14% and ~19% respectively.
We believe the improvement in the ratings of these three channels should be the key revenue and profit drivers for Q3 and beyond. For the quarter, we expect Zee News to post a robust revenue growth of 50.1% on the back of good performance of its channels. However, the overall profitability will be affected by start-up losses of the Tamil channel, thus leading to a decline in the operating margins. Thus, we expect the operating profit for the quarter to remain flat y-o-y and the net profit to decline 7.7% y-o-y despite a hefty growth in the revenues.
TV18:Severe pressure across business verticals: The broadcasting business of TV18 will be heavily affected primarily due to substantial reduction in ad spends by BFSI industry and lack of IPO ads as well as ads from market participants. Advertisement rates are also likely to be under pressure. Web 18’s key revenue-earner, moneycontrol.com, is also expected to witness pressures consequent to the state of the financial markets along with poweryourtrade.com and commoditiescontrol.com.
Further, increase in costs (primarily staff cost due to retention pressures) due to competition in broadcast operations and gestation and marketing costs for in.com in internet operations are likely to lead to a substantial decline in profitability. TV18 has consolidated its print media operations from Q2FY2009. Thus Q3FY2009 results will not be comparable on a y-o-y basis. Consequently, we expect an overall revenue growth of 45.1% to Rs. 163.4 crore, and with the OPM likely to fall to 10% (against 28% in Q3FY2008), the operating profit is likely to dip by 48% y-o-y. Thus, we expect TV18 to post an adjusted net loss of Rs. 1.7 crore against a profit of Rs. 11.5 crore in the corresponding quarter of the last year.
Alongside, we present a table of brokerage previews of Q3 media company results, to give a feel of what is likely to be in store for investors.
- J N Mamtora
mamtorajn@yahoo.co.in
(The writer is a B. Tech from IIT, and MBA from IIM, Ahmedabad.)
Issue dated Jan 25 – 31, 2009
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