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2001 : The Year Ahead

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What a year, yaar !!!!! Indian media stocks soared like there was no tomorrow before the (in hindsight inevitable) turnaround and since then it‘s just been down, down, down...

Dreams came true for some while the harsh reality of shattered hopes was what most had to swallow.

A few became billionaires, many virtually (on paper) turned millionaires overnight. But for the average Joe it‘s time to pick yourself off the floor. The bar is closed and has been for some time. If anything marked out the rollercoaster that was the Year 2000 it must surely be the madness that was the Dotcom mantra. The year gave birth to the concept of New Economy stocks also known as TMT stocks or ICE stocks. The concept of a unified world market gained ground as the ripple effect of market forces in one country affected stocks in other markets. A clear sign of what the future holds. As the world comes to terms with Pax Americana, for stock indices it was the Nasdaq which showed the way for investors as the global indicator for technology stocks.

The year started with a big bang for new economy stocks which for a time literally flattened those from the old economy. It reached its zenith in the month of February. And then the bubble started losing air and its been haemorrhaging ever since.

The Sensex, the effective indicator of the stock market, reached its alltime high at 6,150 intraday on 14 Feb 2000. Then it started its inexhorable southwards travel which has hardly been disturbed throughout the year. The Sensex was hovering around the 4,000 mark at the end of the year.

Media stocks simply rode on the wave of market frenzy. Mutual funds and instititutional investors chased media stocks like dogs in heat to supposedly balance their portfolios. The scarcity of media stocks in the Indian market in the initial period of the year coupled with the fatal attraction of TMT stocks pushed even second rank media stocks in the upward spiral. The insanity in the Market was best exemplified in the listing of TV18 stocks at 10 times its issuing price. It was the same story with all other media stocks too. This resulted in giving more importance to valuations based on some assumption rather that actual revenue generation and profit making.

Looking back, our average Joe didn‘t stand a chance. With the convergence hype created by the multi-billion dollar Time-AOL merger. Fuelled by the phenomenal post-listing returns by TV-18, stocks in the media sector touched dizzying heights.

Zee, as it positioned itself as a major convergence player in India, was caught up in the market frenzy. Its share (which was split by 1:10 at Rs 670 in December 1999) zoomed up to touch Rs 1,630. But then it plunged downwards as the market headed in the same direction. All its grandiose plans, be it the buying of Asianet or the Agrani satellite project or the internet over cable project, all essentially dependent on its share valuation, were thrown into troubled waters. Almost in tandem with the failure of its growth plan was the onslaught by Star on Zee‘s advertising revenue. The main bread and butter source for the group as of now, it all took a heavy toll of the Chairman Subhash Chandra‘s script. The huge success of Star‘s ‘Kaun Banega Crorepati‘ followed by the miserable showing of Zee‘s ‘Sawal Das Crore Ka‘ resulted in a further downslide. The scrip is currently trading at a 52 week low of Rs 250 with a market capitalisation of around Rs110 billion. Even though the company has agreed to undertake a restructuring plan it has many a mile to go to regain its lost glory.

Another major loser of the year was Chennai-based Pentamedia Graphics which has seen its scrip skid to the tune of 73%. The scrip was at Rs 1,500 in January 2000 and went up to Rs 2,250 in March. It‘s been all downhill since then. To add to its worries it recently lost a Nasdaq listed client who contributed a sizeable portion to its revenue. It has also acquired 51% stake in the loss making Film Roman, a Nasdaq listed company which failed to generate expected business. The scrip is currently trading at Rs 285 and there is no sign of recovery in the near future. Additionally, it has been chasing a dud project, NumTV.com, which has hype-hype written all over it and looks unlikely to make money for several years to come.

Crest Communications, which is basically an ad film maker and also into animation/graphics as well as being a TV software production house performed relatively better. Financial Year 2000 saw net profit climbing up from Rs4.4 million in 1999 to Rs23.5 million. But the quarter ended in September 2000 showed a loss of Rs9.3 million. The scrip was traded at Rs550 in January, which went up to touch a 52 week high of Rs1,357 in mid-March. Then it came down with the market and settled at Rs350 in September. The scrip hovered around that level for almost two months before taking a nosedive again. At year-end, the scrip was trading around Rs135.

The company‘s advertising division commands a market share of over 20 per cent. In computer graphics, its clients include Warner Brothers, Disney, Rich Animation and and Universal. Looking at its rich clientele, strong team and hold over the market, the company is expected to do well in 2001. Even exports will drive earnings for the company.

The Kapoor clan of Balaji Telefilms: Sizzling the stock exchanges

Sri Adhikari Brothers was another media scrip which made its mark in the year 2000. It is a content rich company with more than 2,000 hours worth of software in its possession, which is slated to go up to 4,000 hours in the next few months. The company had launched its channel in March this year which is doing fairly well. The share touched a high of Rs 2,350 during the mayhem, and then came down drastically to Rs 200 towards yearend. The trading volumes are very low showing low liquidity.

Even though broadcasting involves a higher risk as it takes time for a channel to break even and become a cash generator, the company has a low gearing and can raise funds without really putting much pressure on its balance sheet. If the channel could generate good cash the scrip will be lifted, otherwise software production, which is the core competency of the group will keep the scrip floating.

TV18 is another strong media scrip which has held its own in the latter part of the year. As there are many channels, it is the programming which makes the difference and ultimately affects revenue generation. TV18 has a strong content background. And even though its share price could not hold the initial swelling post its listing, it can still claim to be in a good position. The scrip traded at Rs 1,950 immediately after getting listed in January and then scaled a record high of Rs 2,323 in mid-March. In the post frenzy era it drastically came down and was trading around Rs 305 by the end of the year. But in the last quarter it has shown a firmness which looks likely to continue in first few months of 2001.

Padmalaya Telefilms created some waves at the end of the year due to rumours floating of a tie-up with a US company. The stock is now comparatively stable, and being in TV software production has growth potential. It is one of the stocks where investors are zeroing in.

Other small stocks like ATN international, Jain Studios, Galaxy Multimedia have maintained a low profile except for some shocks due to the initial turmoil in the market.

Media stocks (which are also considered as new economy stocks) which were once being clubbed along with information technology stocks will no longer be able to hide under that umbrella.

Reason: investors have recognised that they are a different breed, despite their convergence plays and close association with the Internet, and information technology. The recognition is even more apparent with the response to the four content providing TV companies which made their IPOs towards the latter half of the year and are doing reasonably well on the bourses.

In a depressed market, Balaji Telefilms, Pritish Nandy Communications, Mukta Arts, Tips Music, notched up good shows,indicating the market‘s honeymoon with the media has not ended. Balaji Telefilms proved a great performer. It reached Rs260 which is double its issuing price of Rs130 within the first month of trading. The merger with Nine Entertainment Network proved to be blessing as it is giving assured revenue. Other new scrips like Pritish Nandy Communications, Mukta arts are also doing well and are expected to perform well in the new year due to a strong brand name and experience.

Coming year

With TV penetration still low, there is tremendous potential for broadcasters. Good news for the broadcasters would be the approval for DTH, digital terrestrial transmission and DTO as well as uplinking permission. Similarly, with more and more broadcasters coming up, demand for content providers is expected to rise sharply. However, looking forward, the going for television software companies should be better as they are becoming a favourite of the market. The reason is simple. Broadcasters rely on advertising revenues for their income. They generate their revenues if the shows they air become popular and generate high TRPs. And who is it that provides them these shows? TV software providers of course and their downside is much less than broadcasters as they are commissioned to produce a certain number of episodes and income is guaranteed. They have hardly any gestation period for revenue generation if they get the creative part right. Additionally, with an increasing number of channels launching the need for content is skyrocketing. And KBC (Kaun Banega Crorepati) has proved how even an also-ran network can be turned around and make pots of money with quality programming.

The New Year will probably see more players entering the field to tap the primary market. Names range from big players like UTV, NDTV, Sony Entertainment Television to relatively smaller ones like Nimbus. Even Bollywood icons now want to share the pie. Clearly, the sector is evolving

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