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Beyond digitization,
these are the best Indian media stocks.
Often billed as the next great investing opportunity, the Indian media space has flattered to deceive, with the promised "digitization revolution" yet to accrue any significant benefits. Investors are better off playing niche themes such as regional print newspapers and radio companies for better returns, an analysis by IDFC says.
Often billed as the next great investing opportunity, the Indian media space has flattered to deceive, with the promised "digitization revolution" yet to accrue any significant benefits. Investors are better off playing niche themes such as regional print newspapers and radio companies for better returns, an analysis by IDFC says. Here's a summary.
Investment argument
With about 12 crore households in the country having access to cable and satellite (C&S) services (the world's second largest market), and with 350 crore cinemas that broadcast over 1,000 movies every year, the India media & entertainment (M&E) industry generates revenues of only USD 15 billion (or 1 percent of world share), compared to USD 120 billion for China, USD 190 billion of Japan and USD 500 billion for the US.
However, the tide is expected to turn, with the Indian M&E industry slated to grow at a compounded growth of over 14 percent between 2013 and 2018, compared to less than 10 percent growth over the past five years.
Besides the favourable macros -rising per capita incomes, a growing middle class moving towards higher discretionary spends, a young population with changing lifestyles and aspirations and underpenetration in the media market will also help accelerate growth.
Penetration currently stands at 30 percent for print among literate population, 60 percent of households for cable & satellite (C&S) TV and 13 percent for FM radio.
The increasing advertising growth is expected to benefit digital advertising the most (which is expected to double its share from 8.3 percent to 14.7 percent but there are no listed plays in the segment.
Broadcast and distribution
After digitization was mandated by the Indian government (analog cable TV is expected to be shut off in India by 2014), it was expected to prevent leakages within the system and bump up average revenue per user (ARPU) from Rs 180 (about 80 percent of which was typically not-declared) to Rs 200.
However, deep-rooted mistrust between multiple-systems operators (MSOs) and local cable operators (LCOs), who want a larger share of ARPU, has resulted in MSOs collecting only 33 percent of ARPU (Rs 65) as against their equitable share of 65 percent.
While lack of scale, no control over last mile and lesser-than-ideal penetration for the high-margin broadband business has led to limitations to the cable TV business model.
As a result, IDFC is neutral on distributors such as Hathway (price target: Rs 294) and Den Networks (Rs 165). It only has a buy rating on Dish TV (Rs 68) in view of traction in subscriber addition and expected lower licence fee regime, which lends longer-term visibility.
Meanwhile, for broadcasters, digitization has come as a double-edged sword: it ensures no platform can deny carriage, but has worsened viewership fragmentation by easing bandwidth and leading to launches of multiple channels. For instance, in the late 80s, Mahabharat (the most viewed show on Doordarshan) garnered a TRP share of 70 percent, Kyunki Saas Bhi Kabhi Bahu Thi notched up a share of 20 percent in 2004-05 while top grosser Diya Aur Baati Hum got a share of 3.7 percent in 2013.
To protect their share, broadcasters are launching more and more channels, in line with Zee CMD Punit Goenka's call of "lead fragmentation or get fragmented". This will lead to further fragmentation.
Assuming subscription revenues are divided equally among the three participants in the value chain (LCO, MSO and broadcaster), the broadcaster's collection would be Rs 60 per household per month. At 12 crore pay-TV households, this amounts to Rs 8,640 crore for FY13, which is about 57 percent higher than broadcasters' current collection (of Rs 5,500 crore. This implies broadcasters collected about 64 percent of their estimated fair share.
Assuming digitization plays out in three years, subscription revenues would register a CAGR of about 16 percent over FY13-16E. IDFC believes this rate is more realistic than the 20-25 percent levels that the Street is currently building in.
IDFC is bullish on Zee as both advertising and revenue subscription as buoyed by its investments in new channels, it believes FY16E/17E will be strong after a dull FY15E.
Print
Advertising for newspapers in the US has fallen at a compounded rate of 8 percent from 2002 to 2012 as the lucrative classifieds business shifted from print to the Internet and as readership fell as people shifted to consuming their news online.
The Indian print industry's dependence on classified advertising is low, especially for the Hindi/ vernacular medium -- classifieds contribute about 20 percent to India's English print advertising revenues but only 8-9 percent for Hindi/vernacular print.
As a result, English newspapers are more vulnerable to rising influence of online advertising. The time horizon of any negative impact on the Hindi/vernacular print medium from the Internet would be longer.
IDFC has a buy rating on DB Corp (which publishes Dainik Bhaskar) and Jagran Prakashan (which publishes Dainik Jagran) as it believes that low internet penetration in Hindi speaking states, dependence on local advertisers (who lack too many options), an unparalleled reach in Tier I and II towns and reader engagement will result in revenue growth of 14 percent (double that of print) even as newsprint cost remains a risk.
Radio
Meanwhile, the radio industry is increasingly gaining prominence with its advertising revenue for private FM slated to grow 18.1 percent over the next five years.
TRAI's Phase II policy (FY05) changed the fixed-fee regime (licence fee) to a revenueshare model, which paved the way for better profitability for private FM players. It expanded the reach of private FM by taking it to 87 towns and cities from 12 earlier.
Phase III would allow private players to own multiple frequencies (radio stations) in the same town. It would also allow airing of news sourced from All India Radio even as the industry hopes that private news will be allowed soon.
The new norms would expand the listener base and drive content differentiation. It will also increase the licence period from 10 years (under Phase II) to 15 years. This would improve visibility of reaping profits from investments. The number of towns under coverage will triple. We expect Phase III auctions to be completed by end FY15.
Unlike the print medium, which has been affected by the rise of Internet (especially in the Western world), radio has held on. It has, in fact, been able to increase its listener base. Taking the US as a proxy for the Western world, we highlight that despite high broadband penetration of about 80 percent in households and smartphone penetration of ~50 percent among individuals; radio listeners grew by 0.3 percent in 2013. As a medium, radio has proved to be more robust than print.
IDFC has an outperform rating on Entertainment Network India Ltd (ENIL) (TP: Rs 545), which owns the Radio Mirchi brand.
Read more at: http://www.moneycontrol.com/news/stocks-views/beyond-digitizationarebest-indian-media-stocks_1159284.html?utm_source=ref_article
Often billed as the next great investing opportunity, the Indian media space has flattered to deceive, with the promised "digitization revolution" yet to accrue any significant benefits. Investors are better off playing niche themes such as regional print newspapers and radio companies for better returns, an analysis by IDFC says.
Often billed as the next great investing opportunity, the Indian media space has flattered to deceive, with the promised "digitization revolution" yet to accrue any significant benefits. Investors are better off playing niche themes such as regional print newspapers and radio companies for better returns, an analysis by IDFC says. Here's a summary.
Investment argument
With about 12 crore households in the country having access to cable and satellite (C&S) services (the world's second largest market), and with 350 crore cinemas that broadcast over 1,000 movies every year, the India media & entertainment (M&E) industry generates revenues of only USD 15 billion (or 1 percent of world share), compared to USD 120 billion for China, USD 190 billion of Japan and USD 500 billion for the US.
However, the tide is expected to turn, with the Indian M&E industry slated to grow at a compounded growth of over 14 percent between 2013 and 2018, compared to less than 10 percent growth over the past five years.
Besides the favourable macros -rising per capita incomes, a growing middle class moving towards higher discretionary spends, a young population with changing lifestyles and aspirations and underpenetration in the media market will also help accelerate growth.
Penetration currently stands at 30 percent for print among literate population, 60 percent of households for cable & satellite (C&S) TV and 13 percent for FM radio.
The increasing advertising growth is expected to benefit digital advertising the most (which is expected to double its share from 8.3 percent to 14.7 percent but there are no listed plays in the segment.
Broadcast and distribution
After digitization was mandated by the Indian government (analog cable TV is expected to be shut off in India by 2014), it was expected to prevent leakages within the system and bump up average revenue per user (ARPU) from Rs 180 (about 80 percent of which was typically not-declared) to Rs 200.
However, deep-rooted mistrust between multiple-systems operators (MSOs) and local cable operators (LCOs), who want a larger share of ARPU, has resulted in MSOs collecting only 33 percent of ARPU (Rs 65) as against their equitable share of 65 percent.
While lack of scale, no control over last mile and lesser-than-ideal penetration for the high-margin broadband business has led to limitations to the cable TV business model.
As a result, IDFC is neutral on distributors such as Hathway (price target: Rs 294) and Den Networks (Rs 165). It only has a buy rating on Dish TV (Rs 68) in view of traction in subscriber addition and expected lower licence fee regime, which lends longer-term visibility.
Meanwhile, for broadcasters, digitization has come as a double-edged sword: it ensures no platform can deny carriage, but has worsened viewership fragmentation by easing bandwidth and leading to launches of multiple channels. For instance, in the late 80s, Mahabharat (the most viewed show on Doordarshan) garnered a TRP share of 70 percent, Kyunki Saas Bhi Kabhi Bahu Thi notched up a share of 20 percent in 2004-05 while top grosser Diya Aur Baati Hum got a share of 3.7 percent in 2013.
To protect their share, broadcasters are launching more and more channels, in line with Zee CMD Punit Goenka's call of "lead fragmentation or get fragmented". This will lead to further fragmentation.
Assuming subscription revenues are divided equally among the three participants in the value chain (LCO, MSO and broadcaster), the broadcaster's collection would be Rs 60 per household per month. At 12 crore pay-TV households, this amounts to Rs 8,640 crore for FY13, which is about 57 percent higher than broadcasters' current collection (of Rs 5,500 crore. This implies broadcasters collected about 64 percent of their estimated fair share.
Assuming digitization plays out in three years, subscription revenues would register a CAGR of about 16 percent over FY13-16E. IDFC believes this rate is more realistic than the 20-25 percent levels that the Street is currently building in.
IDFC is bullish on Zee as both advertising and revenue subscription as buoyed by its investments in new channels, it believes FY16E/17E will be strong after a dull FY15E.
Advertising for newspapers in the US has fallen at a compounded rate of 8 percent from 2002 to 2012 as the lucrative classifieds business shifted from print to the Internet and as readership fell as people shifted to consuming their news online.
The Indian print industry's dependence on classified advertising is low, especially for the Hindi/ vernacular medium -- classifieds contribute about 20 percent to India's English print advertising revenues but only 8-9 percent for Hindi/vernacular print.
As a result, English newspapers are more vulnerable to rising influence of online advertising. The time horizon of any negative impact on the Hindi/vernacular print medium from the Internet would be longer.
IDFC has a buy rating on DB Corp (which publishes Dainik Bhaskar) and Jagran Prakashan (which publishes Dainik Jagran) as it believes that low internet penetration in Hindi speaking states, dependence on local advertisers (who lack too many options), an unparalleled reach in Tier I and II towns and reader engagement will result in revenue growth of 14 percent (double that of print) even as newsprint cost remains a risk.
Radio
Meanwhile, the radio industry is increasingly gaining prominence with its advertising revenue for private FM slated to grow 18.1 percent over the next five years.
TRAI's Phase II policy (FY05) changed the fixed-fee regime (licence fee) to a revenueshare model, which paved the way for better profitability for private FM players. It expanded the reach of private FM by taking it to 87 towns and cities from 12 earlier.
Phase III would allow private players to own multiple frequencies (radio stations) in the same town. It would also allow airing of news sourced from All India Radio even as the industry hopes that private news will be allowed soon.
The new norms would expand the listener base and drive content differentiation. It will also increase the licence period from 10 years (under Phase II) to 15 years. This would improve visibility of reaping profits from investments. The number of towns under coverage will triple. We expect Phase III auctions to be completed by end FY15.
Unlike the print medium, which has been affected by the rise of Internet (especially in the Western world), radio has held on. It has, in fact, been able to increase its listener base. Taking the US as a proxy for the Western world, we highlight that despite high broadband penetration of about 80 percent in households and smartphone penetration of ~50 percent among individuals; radio listeners grew by 0.3 percent in 2013. As a medium, radio has proved to be more robust than print.
IDFC has an outperform rating on Entertainment Network India Ltd (ENIL) (TP: Rs 545), which owns the Radio Mirchi brand.
Read more at: http://www.moneycontrol.com/news/stocks-views/beyond-digitizationarebest-indian-media-stocks_1159284.html?utm_source=ref_article
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