Budget has negative impact, say media analysts

MUMBAI: Motilal Oswal's Inquire Equity Research (MOSt) report titled "Union budget 2003-04: a review" says that the provisions of the budget indicate that the total effective tax on set top box (STBs) imports would fall from 50.8 per cent to 45 per cent. The union budget would have an overall negative impact on broadcasters and MSOs (multi-system operators), the report adds.

Kotak Securities' research report titled "Union budget 2003-2004" maintains that the budget hasn't had any significant impact on the media sector. It has also maintained its "in-line" rating (in line with the sensex fluctuations) on Zee at a price of Rs 84.

The following are some excerpts from the analyst reports regarding the impact of the budget 2003-04 on issues related to the media sector companies:

* Higher service tax will hurt all broadcasters:

The impact of higher service tax will be negative for all broadcasters including the listed ones namely Zee Telefilms (MOSt rating of "Buy"), Television Eighteen and ETC Networks.

While the increased service tax can be passed on to cable subscribers because the increase is only by 3 per cent, it might not be easy to pass on the incremental service tax burden on advertisers due to the prevalent weakness in ad markets.

The MOSt report states that there has been stiff resistance exhibited by big advertisers like HLL, Nestle, Pepsi to pay up the 5 per cent service tax in the past. The issue had been resolved and broadcasting companies had to take some hit in absorbing service tax in some specific cases.

The MOSt Inquire analyst team believes that the increased service tax would hurt the advertising business in India even if individual broadcasters manage to pass it on to advertisers.

Kotak Securities' budget report states that Zee Telefilms will have to pass on the increased service tax to its advertisers. It adds that there is no significant bearing on Balaji Telefilms.

* Marginal cut in import duty on set top boxes a negative surprise:

Reduction in import duty post budget 2003-04

MOSt Inquire estimates

The cut in peak customs duty will reduce the duty on imports of fully built set top boxes, albeit marginally. The expectations in the industry were of a much larger cut in duty and this clearly is a deemed negative for the industry. This also belies the optimism in industry participants that the cut in import duty on set top boxes would provide a boost to an accelerated implementation of conditional access system (CAS).

This would negatively impact the pay broadcasters, Zee Telefilms and Television Eighteen and MSOs such as Hinduja TMT, says the MOSt Inquire team.

* Reduction in corporate tax surcharge to benefit all companies:

Reduction in corporate tax surcharge from 5 per cent to 2.5 per cent would benefit all the companies, especially Zee Telefilms and Balaji Telefilms that pay high rates of tax.

Kotak Securities report adds that the real impact on receivables, profitability and turnover will be known in May 2003 when Zee will announce its results.