The media sector will be one of the few sectors in India to demonstrate healthy earnings growth in the next two years, says Credit Suisse in its Equity Research report
The Indian TV industry is passing through an once-in-a-lifetime change in the form of digitisation, whereby the entire country will move to a digital mode of content distribution. Digitisation will allow broadcasters to charge a fairer price for content and result in an increase in ARPU (average revenue per user) as well, apart from better distribution of ARPU. Digitisation will impact advertising as well—it will increase the reach for a number of small channels (with consumers getting >2x channels) and hence, should be negative for the existing large bouquets and positive for niche channels.
Sun TV, given its dominance in the south, is able to better monetise its content, evident from its DTH (Direct to Home) ARPU which is almost 2x that of Zee. These are the observations made by Credit Suisse analysts in its Equity Research report on the television industry in India.
According to Credit Suisse, there is not enough clarity on revenue sharing between the multiple-system operators (MSOs) and the local cable operators (LCOs). Once the advantage of analog cable, i.e. lower taxes and content costs, goes away, LCOs will be forced to hike prices. This would enable DTH (Direct to Home) companies to also raise tariffs. Unlike DTH, the MSOs need to share revenues with LCOs and hence have a higher profitability on a per-subscriber basis. Credit Suisse analysts maintain ‘outperform’ on Dish TV (24% potential upside).
DTH companies are likely to benefit not only from additional subscriptions, but also improvements in ARPU, according to Credit Suisse. Despite a slowing economy,
ad spend should hold up on likely FMCG gross margin expansion and consequently improve the profits of broadcasters. On the whole, the media sector will be one of the few sectors in India to demonstrate healthy earnings growth in the next two years, says Credit Suisse.
The Indian media industry’s size stood at around $17 billion last year. There is still significant under-penetration in terms of consumer spends on media and entertainment in India, with the country far behind developed countries on parameters such as media industry size as a percentage of GDP and annual media spend per capita.
Credit Suisse analysts feel that Sun TV, Dish TV India and Zee TV will be the high performers in the equity market (Please see figure below)
In the table below, Credit Suisse presents a comparison of Indian media companies with foreign ones in the sector, for equity performance:
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Crude oil prices have dipped below $100 for the first time since last July and have prompted analysts to sound an optimistic note on Asia’s economy. India is one of the beneficiaries, according to Credit Suisse
In a note released on 17 April 2013, Credit Suisse expects that the recent fall in crude oil prices will be positive for Asia as a whole, except Indonesia and Malaysia. Even India is expected to benefit. The note stated: “A sustained 10% drop in oil price will likely add 10-20 basis points (bps) to gross domestic product (GDP) growth in non-Japan Asia but subtract 50-90 bps off headline inflation.” Referencing to countries like India, it further added, “For fuel subsidisers, the lower oil price will improve their fiscal position with the exception of Malaysia.”
Crude oil prices have dipped below the $100 per barrel psychological barrier for the first time since July. The key beneficiaries of the fall in crude are India, Thailand, China, Singapore, Taiwan, the Philippines, Hong Kong and South Korea. The biggest losers, however, are Malaysia and Indonesia. The reason—Malaysia is a loser because it is a net-seller of fuel as is Indonesia. Commodity prices, especially crude oil, have been significant influencers in emerging markets economies.
The fall in crude would result in fall in inflation, better fiscal situation and a more important yet possible outcome: rate cut by central banks. The report said, “Lower inflation pressure supports our view that central banks in India, Korea, Taiwan and the Philippines will cut their policy rates further.” Yet, Credit Suisse feels that central banks in Indonesia, Malaysia and Thailand will not ease their stance as their respective economies are already overheating.
It isn’t only crude oil prices that have been a significant event. Even other commodity prices have fallen, especially gold. According to the figure below, commodity prices decline would mean less headline inflation as well. Several important commodities like rice, soyabean, corn, palm oil (used by food manufacturers and FMCGs), rubber (used by automotives); all have declined when compared to 2012 price levels. This bodes well as far as inflation is concerned.
However, the biggest beneficiary of India’s fiscal situation is gold. It has been a remarkable fortnight for Indian markets as they take an astounding U-turn after correcting for much of the year. Apart from the fall in crude oil prices, the precipitous crash in gold prices, which careened down as much as 13% in just a few days, prompted many analysts and pundits to suddenly be optimistic about India’s macro picture and are already blowing their bull-horns. The markets have already reacted positively to the crude and gold price decline. The BSE Sensex has rebounded more than 2%, or more than 500 points, since news of gold sell-off, and is currently quoting at 18,731 at time of writing this piece.