Motilal Oswal has come out with its report on media sector. The research firm is neutral on Zee and buy on Sun.
TRAI regulations on advertising will impact ad volumes due to regulation of ad inventory on a clock-hour basis.
While prime time GEC inventory might be impacted by 10-20%, the impact would be much higher in other genres like news, movies, and sports.
We believe it will be difficult for the broadcasters to fully offset the volume impact through price hikes given current weak advertising environment.
The advertising regulations might force broadcasters to invest more in content and increase original programming hours to protect revenue, thus impacting margins.
There could be downside risk to our FY13 ad revenue growth estimate of 11% and 16% for Zee and Sun. Every 1% change in ad revenue impacts earnings for Zee and Sun by 1.6/0.8%.
Zee and Sun trade at FY13 P/E of 19x and 13x respectively. We have a Neutral rating on Zee and Buy on Sun.
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