The media sector will be one of the few sectors in India to demonstrate healthy earnings growth in the next two years, says Credit Suisse in its Equity Research report
The Indian TV industry is passing through an once-in-a-lifetime change in the form of digitisation, whereby the entire country will move to a digital mode of content distribution. Digitisation will allow broadcasters to charge a fairer price for content and result in an increase in ARPU (average revenue per user) as well, apart from better distribution of ARPU. Digitisation will impact advertising as well—it will increase the reach for a number of small channels (with consumers getting >2x channels) and hence, should be negative for the existing large bouquets and positive for niche channels.
Sun TV, given its dominance in the south, is able to better monetise its content, evident from its DTH (Direct to Home) ARPU which is almost 2x that of Zee. These are the observations made by Credit Suisse analysts in its Equity Research report on the television industry in India.
According to Credit Suisse, there is not enough clarity on revenue sharing between the multiple-system operators (MSOs) and the local cable operators (LCOs). Once the advantage of analog cable, i.e. lower taxes and content costs, goes away, LCOs will be forced to hike prices. This would enable DTH (Direct to Home) companies to also raise tariffs. Unlike DTH, the MSOs need to share revenues with LCOs and hence have a higher profitability on a per-subscriber basis. Credit Suisse analysts maintain ‘outperform’ on Dish TV (24% potential upside).
DTH companies are likely to benefit not only from additional subscriptions, but also improvements in ARPU, according to Credit Suisse. Despite a slowing economy,
ad spend should hold up on likely FMCG gross margin expansion and consequently improve the profits of broadcasters. On the whole, the media sector will be one of the few sectors in India to demonstrate healthy earnings growth in the next two years, says Credit Suisse.
The Indian media industry’s size stood at around $17 billion last year. There is still significant under-penetration in terms of consumer spends on media and entertainment in India, with the country far behind developed countries on parameters such as media industry size as a percentage of GDP and annual media spend per capita.
Credit Suisse analysts feel that Sun TV, Dish TV India and Zee TV will be the high performers in the equity market (Please see figure below)
In the table below, Credit Suisse presents a comparison of Indian media companies with foreign ones in the sector, for equity performance:
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