Media stocks soar amid election advertisement spending boom

Media companies have emerged as some of the biggest beneficiaries of political party spending in the run-up to elections. With the Bharatiya Janata Party and its rival political parties set to unleash an advertising blitz over the next six months, media stocks, including television, print and radio, are poised to reap the rewards.

“There is an expectation that advertisement spending will see a strong momentum over the next six to eight months due to the elections,” Karan Taurani, Senior Vice President at Elara Capital, said, adding that general elections positively influence radio, television, and print advertising, which is the reason for the rally in media stocks.

Ashish Goel, Managing Partner and Chief Executive Officer of InvestSavy PMS said, “Revenue of media companies should increase as political parties are likely to give them brisk business.”

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To be sure, the growth in advertisement revenue during the last quarters of fiscal 2014 and 2019 (coinciding with years when parliamentary polls were held) was more or less the same as in non-election years. A Moneycontrol analysis showed that advertising revenues increased 12.7 percent, 14 percent, and 14.3 percent from a year earlier, respectively, for Jagran Prakashan, HT Media, and DB Corp in the fourth quarter of 2013-14, in line with the growth in non-election years.

Stocks of media companies have surged in the January-to-May period in the election years of 2009 and 2014. Such a rally was, however, not seen in the same period in 2019, when general elections last took place.

It is not just elections; expectations about higher advertising spending by fast-moving consumer goods (FMCG) companies have also bolstered investor optimism about media companies.

“Media stocks, mostly television stocks, have surged in the last six months in anticipation of higher advertisement revenues from FMCG companies,” said an analyst on the condition of anonymity. Packaged consumer goods companies have ramped up their advertising spending to drive volume growth and gain market share from unorganised players.

Zee Entertainment Enterprises and Sun TV are among the beneficiaries of this trend. The stocks have gained 9 percent and 3 percent, respectively, over six months, the analyst said.

Network 18 and TV18 stocks have surged after the announcement that TV18 and E-Eighteen.com Ltd will be merged with Network18. E18 operates the Moneycontrol website and app.

Taurani said that following the merger, Network18 would be able to cross-sell the combined strengths of its media assets and target higher advertising revenue in the medium to long term.

Cost control measures and synergy benefits from the merger would also drive efficiency, leading to an improved operating margin, he added.

Besides increased ad spending, the other reason for the bump in share prices is the fact that media is still relatively undervalued, said Arunagiri N., the founder and Chief Investment Officer of TrustLine PMS and AIF. “Investors are searching for value,” Arunagiri added.

DB Corp’s stock has surged 63 percent in the last six months, riding on lower newsprint prices. “Newsprint prices adversely impacted profit margins of media companies in FY22-23. With moderation in newsprint prices, FY23-24 is expected to witness a 500-600 basis point YoY (year on year) recovery in margins,” said ratings agency ICRA Ltd in its September 2023 report. Newsprint costs comprise around 45 percent of the expenses of a newspaper publisher.

Newsprint prices shot up 2.5 times to $1,000-$1,100 per tonne during the second quarter of 2022-23 and eased to $650 per tonne in September 2023, the report said.

ENIL’s stock has surged 77 percent in the past six months, boosted by increased government advertisement rates for private FM channels. Arunagiri said the rates were increased by 43 percent in September 2023 after eight years and should benefit radio station operators such as ENIL and Music Broadcast.

Analysts said that the sector’s technicals are also supportive, as the Nifty Media index is seeing an upward momentum.

“After witnessing a strong run-up in indices like Nifty Auto, Nifty Pharma, etc., we are now witnessing a strong up-move on Nifty Media. It is just 20 points shy of the major resistance of 2,495 it hit in December 2021. A close above this level may see a strong rally to 2,900-3,000 levels, with 2,600 being a small hurdle on the way," said Prashant Sawant, founder of Catalyst Wealth.

“The Nifty Media index has seen a consolidation breakout on the weekly timeframe and has been sustaining above the critical moving averages, suggesting a positive trend,” said Rupak De, Senior Technical Analyst at LKP Securities. “Jagran Prakashan has given a consolidation breakout on the daily charts. Over the short-term, the positivity in the stock might prevail, and the scrip might reach Rs 120. Support is seen at Rs 104.”

Nifty Media has gained 27 percent in the past year and 31 percent in the last six months. The top stock by weightage in the Nifty Media index, Zee Entertainment, has delivered 10 percent returns in the past year and 28 percent in the past six months amid uncertainty over its deal with Culver Max Entertainment, formerly known as Sony Pictures Networks India.

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