Media - Quarterly Results Preview (April-June 2008)

Deceleration in advertising growth would reflect in Q1FY09 results, owing to slowdown in the economy while print companies would witness cost pressures due to rising newsprint prices. We expect Jagran Prakashan, HT Media and Entertainment Network India (ENIL) to witness deceleration in ad growth. Pay TV revenue growth is likely to be muted with no significant developments in CAS extension and lack of entry of new DTH players. However, rupee depreciation is likely to benefit international subscription revenue growth of Zee Entertainment Enterprises (ZEEL). We expect Zee News (ZNL) and Jagran Prakashan to show strong earnings momentum. We maintain ZNL and ENIL as our top picks and re-include Jagran Prakashan as one of our top picks, post the steep correction in stock price. TV Today, trading at FY09E EV/EBITDA of 4.2x, is our value pick.
· Newsprint prices on the rise. Newsprint prices continue to boil, with landed cost rising up to US$920/te, driven by supply reduction and rising crude price as well as rupee depreciation further adding to costs. We expect newsprint prices to rise in the short term and correct in ’09 on account of exports from China.
· Q1FY09 results – Minor slowdown in advertising. We expect Q1FY09 to mark the slowdown in ad revenues across mediums due to overall slowdown in the economy. However, the impact is likely to be moderate and we are confident of a 16-18% growth in advertising in CY08. Newsprint cost impact would be muted in Q1FY09 as the major impact will be felt only in H2CY08 on account of FIFO (first-in-first-out) inventory valuations. Subscription revenue growth is likely to be slow owing to lack of any development on CAS extension and entry of new DTH players. We expect ZNL and Jagran Prakashan to witness strong earnings momentum.
· Factors to watch for in Q2FY09: i) Rise in newsprint prices as a further rise of US$60/te announced for the quarter ii) Launch of Colors – the Hindi GEC from the TV18-Viacom stable iii) Further fragmentation in the Hindi GEC space and performance of a number of programmes to be launched post IPL.