Media sector results preview for Q3FY12: Motilal Oswal

Expect print media ad growth be higher than broadcasting: We expect ad revenue growth of 10/21% YoY for HT Media/Jagran, but much lower at 0/-4% YoY for Sun/Zee. Lower growth for broadcasting would be led by (1) high exposure to FMCG sector which has significantly scaled down ad spends, (2) lower ratings for Zee, and (3) higher share of national advertisers on TV.

Like-to-like earnings to decline ~14% YoY for Zee; remain flat for Sun; grow 20/ 24% for Jagran/HT Media: Reported PAT growth for Zee/Sun would be impacted by one-offs in 3QFY11. Sun's 3QFY11 PAT was positively impacted by ~INR0.3b contribution from movie Enthiran, and Zee's 3QFY11 PAT was dragged down by ~INR1b EBITDA loss in sports business. Adjusted for these, we expect flat YoY earnings for Sun and 14% YoY decline for Zee. Zee's reported earnings are expected to grow 36% YoY to INR 1.6b. For print companies, we expect 20-24% earnings growth primarily driven by double digit ad growth and relatively stable raw material costs.

Star Plus and Sony gain market share; Zee TV GRP at new lows: Among Hindi GECs (general entertainment channels), Star Plus and Sony improved their GRP (gross rating points) in 3QFY12. While average GRP for Star Plus/Sony grew 2/15% QoQ, Zee TV and Colors saw average GRP dip ~5-20% QoQ. Colors and Zee TV's 3QFY12 market share declined to 18.3% and 11.8% (v/s 19.1% and 15.0% in 2QFY12) respectively. Sony has moved into the second position ahead of Colors with a market share of 17.3%. Star Plus continues to remain in the first spot maintaining a significant lead with a market share of 24.5% in 3QFY12 (v/s 23.8% in 2QFY12).

Print media - International newsprint prices stable but INR depreciation a concern: International newsprint prices have stabilized since 3QFY11 after steadily rising for six consecutive quarters. However, upward pressure on domestic landed cost remains a concern due to INR depreciation. Print media companies expect double-digit price inflation in newsprint during FY12. We expect raw material costs to increase by 18/22% YoY for HT/Jagran and impact margins by 100-250bp.

Sector outlook and view - Buy Sun TV: Given the macro slowdown we expect FY12 ad revenue growth for the broadcasting industry to remain in mid-single digits. However, medium-to-long term outlook for subscription revenue has improved post the recent Cable Amendment Act mandating digitization with a December 2014 deadline for analog signals. While earnings growth for print companies in 3QFY12 will be higher, raw material inflation and continued weakness in the macro environment remain overhangs. We maintain Buy on Sun TV and Neutral on HT Media, Jagran and Zee.

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