>MEDIA SECTOR (ICICI DIRECT)

EARLY FESTIVITIES

We expect Q2FY10 results for the I-Sec Media universe to report healthy ad growth, in spite of the quarter being seasonally weak. We expect ad revenue growth to be led by a turnaround in the consumer sentiment and early festive season starting from September (versus October last year). Our channel checks with media planners and advertisers suggest strong revival in the ad environment and build-up in advertising frenzy, prior to the festive season. Print companies are
expected to see improvement in EBITDA margin led by savings in raw material costs as newsprint prices remained low. General entertainment channel (GEC) players are likely to show QoQ ad revenue improvement due to low base effect owing to high ad-budget allocation to sports events in Q1FY10. We expect positive earnings surprise from Jagran Prakashan and Sun TV Network and negative earnings surprise from Zee Entertainment Enterprises (ZEEL) and Balaji Telefilms (BTL). We prefer companies with higher exposure to regional advertising and better cost control such as Jagran, Sun and ZNL; we are negative on Entertainment Network India (ENIL) and BTL.

■ Ad revival to drive sequential improvement in revenue growth. YoY revenue growth for the I-Sec Media universe is expected to rise to 3.1% in Q2FY10E versus a flat YoY growth in Q1FY10, led by improving ad revenue growth in general and continuing DTH revenue growth for broadcasting players. Regional players will likely continue to excel, with Jagran outperforming HT Media and Sun & ZNL outperforming ZEEL.

■ Newsprint prices continue to decline. Newsprint prices were down another 26.4% QoQ and have dropped ~40% from their highs in ’08. This coupled with rupee appreciation will lead to significant cost savings for print companies. While Jagran witnessed the impact in Q1FY10, HT Media will begin to feel it from Q2FY10.

■ Positive earnings surprise driven by strong ad growth for Jagran & Sun; we expect negative earnings surprise for ZEEL (owing to higher costs) & BTL (owing to lower realisations).

■ Key factors to watch for: i) indications of recovery in ad revenues, ii) decline in newsprint costs for print companies and iii) rise in DTH revenues for ZEEL and Sun.

To see full report: MEDIA SECTOR