Result Preview - Media - Digitization progress and digital offerings to drive growth in Q1FY19

Investment in content is very positive for these companies in long term as digital wave will give a robust opportunity to monetise their content expenditure.

Jul 22, 2018 03:07 IST India Infoline News Service

Broadcasters to report double digit revenue growth: Q1FY19 is expected to be a very good quarter for broadcasters. Subscription revenues are expected to grow on account of digitization, post which ARPUs (average revenue per user) is expected to increase. Further, rise in the ad spent by FMCG companies is expected to drive advertisement revenues for media companies. The popularity of IPL is expected to benefit players like Sun TV Network. Zee Entertainment Enterprises is expected to report robust ad revenue growth aided by its network market share gain.

Response to digital offerings would be the key thing to watch for: Digital is expected to drive next leg of growth for the media and entertainment industry. With the arrival of Netflix broadcasters have launched Over the Top (OTT) platforms. The response to their OTT platforms and revenue contribution by digital platforms would be the key things to watch for in the results.

Content cost increase may limit margin expansion to some extend: Broadcasters are expected to report healthy margin expansion on the back of positive operating leverage. However, we expect content cost to grow in double digit owing to digital offerings. This may limit the margin expansion to some extent. However, investment in content is very positive for these companies in long term as digital wave will give a robust opportunity to monetise their content expenditure.

New launches announcement: Investors will be very interested in the guidance by broadcasters for new launches of channels in new region/genre. Further, movie capex guidance, launch of originals by Sun TV and ZEEL would also be of investors’ interest. We expect digitization, TRAI’s recent order for Ala carte offerings and digital are the tremendous opportunities for broadcasters to gain market share by providing relevant content.

Our top picks are Zee Entertainment Enterprises Ltd (ZEEL) and Sun TV Network Ltd (Sun TV)

ZEEL (Rs in cr) Q1FY19E Growth qoq Growth yoy
Revenue 1,776 2.9% 15%
EBITDA 543 7.3% 12%
EBITDA margin (%) 30.6% 124 -87
PAT 335 45.2% 33%

ZEEL is expected to see ~15% yoy revenue growth owing to gain of network market share. We expect EBITDA margin to contract by ~87bps yoy to 30.6% owing to rise in content cost. Further, digital platform, ZEE5's performance would be the key factor to watch.

Sun TV (Rs in cr) Q1FY19E Growth qoq Growth yoy
Revenue 990 38.1% 26%
EBITDA 628 20.2% 40%
EBITDA margin (%) 63.4% -943 639
PAT 351 21.1% 40%

Sun TV Network, is expected to report a revenue growth of ~26% yoy owing to digitization in TamilNadu and storng IPL revenues. Further, we expect EBITDA margin to expand by ~639bps as the IPL franchisee turn profitable. Sun's viewership share will be the key thing to watch.

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