Report on Shemaroo

Zee TV & Sun TV: the Elara Capital view

The investment banker has upgraded the outlook for the two broadcasting majors - - Zee TV and Sun

NEW DELHI: Television has seen a tremendous rise in its viewership during the ongoing lockdown induced by Covid2019 but it is not doing much for the ad revenues. As per Mumbai-based investment bank Elara Capital findings, ad growth may remain weak for broadcasters as several brands look to cut discretionary spend and new product launches get delayed.

The report put a negative stance on broadcasters due to structural risks, such as disruptions over TV channel monetisation due to Jio pushing it TV offerings free-of-cost to Jio subscribers, implementation of NTO 2.0, and the threat from digital offerings.

However, Elara added that subscription revenue can get an upswing in the time, balancing their cash registers. It stated, “On the other hand, if NTO 2.0 gets delayed and is not implemented this year, we may see healthy growth in subscription revenue, given activation of the second TV and viewers flocking to TV, which is a win-win situation as subscribers revenue contributes 35-40 per cent of revenue.”

According to the findings, factors like expected longer-term consumer stickiness, a sharp increase in ad spends by e-commerce and hygiene brands, and subscription revenue growth due to the addition of new consumers and reactivation of the second TV will work in the favour of broadcasters in these times.

However, there are certain impending threats too, including increased use of mobile phones, shooting not happening for premium properties like reality shows, cutting of ad spends by global advertisers in CY20, and money not being diverted to GEC and entertainment genres. Also, if the NTO2.0 is implemented this year, the expected increase in subscription revenue will be marred.

The report also analysed the impact of the current situation on two big broadcasters Zee and Sun TV.

“Zee and Sun TV together have a strong proposition in the movie segment, which has grown 66 per cent in terms of consumption as per recent BARC report, which too will support ad growth. Even after the lockdown ends, we expect TV consumption to rise sharply as consumers continue to adhere to social distancing norms and prefer to remain indoors.”

It added, “Zee has corrected ~38 per cent since the lockdown and is trading at a historically low valuation of 8.2x FY22E P/E (vs a 10-year average low of 19.0x) after factoring in concerns over promoter holding. Sun TV has fallen nine per cent and is trading at 11.4x FY22E P/E (vs a 10-year average low of 16.5x).

Elara also revised its rating to Buy from Accumulate on Zee with a lower TP of Rs 270 from Rs 350 based on 15x (from 17x) one-year forward P/E. It also upgraded its rating to Accumulate from Reduce on SUNTV with a lower target price of Rs 440 from Rs 510 based on 13.5x (unchanged) one-year forward P/E.

The report added that these stocks can get to perform better in the near term until the lockdown is lifted if they are able to innovate by providing their own digital content on TV; doing an effective selection of old catalogue; and by enhancing their movie offerings.

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