Media stocks rebound on low valuations; analysts expect gradual recovery

Photo: Shutterstock
After falling the most among sectoral indices in early trade on Wednesday, shedding close to 4 per cent, the Nifty Media Index bounced backed sharply to close 3 per cent higher. The sector — comprising broadcasters, multiplex operators, and the print media — has been among the most impacted from the COVID-19 outbreak and the subsequent lockdown, on account of pressure on advertising revenues, uncertainty in the subscription segment, and a sharp drop in footfall.

 

While the broader markets have also recovered, Karan Taurani of Elara Capital says valuations for the sector are attractive, and a downside from their current levels seems limited. He adds that valuations for some players are lower than the levels last seen during the 2008 financial crisis. Zee Entertainment, which has the highest weight in the index, has declined 50 per cent over the month, with PVR down 32 per cent over the same period.

 

While most brokerages are positive on the structural growth story of multiplex players vis-à-vis other segments, they will bear most of the pain in the near term. Given the lockdown, brokerages have revised their FY21 footfall growth estimates from 8-12 per cent to just 1-2 per cent.Though big-budget movies are expected to be pushed back, smaller movies could be shot for the digital medium, thus impacting the release schedule.

Analysts, however, say there could be bunching up of movies from the September quarter, which could offset some of the losses.Some relief is expected on the cost front, especially rentals (which account for 18-20 per cent of sales), given the force majeure clause.For the broadcasting space, a sharp fall in advertising growth is expected to dent revenues in the June quarter, as well as in FY21.

 

While analysts expect subscription revenues to be more stable, uncertainty over the new tariff order could weigh on growth.Given the pressure on revenues, analysts expect investments in over-the-top or OTT content to take a back seat for now. The high gestation period of the digital medium, as well as large investments, are expected to dent near-term profitability.While brokerages expect a recovery in Q2FY21, analysts are not hopeful of a sharp rebound like in 2008, when the recovery was ‘V’ shaped.



Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel