scorecardresearchQ4 Earnings Preview: Media and entertainment firms may see muted quarter

Q4 Earnings Preview: Media and entertainment firms may see muted quarter with poor ad-revenue growth

Updated: 20 Apr 2023, 01:02 PM IST
TL;DR.

  • Broadcasters' ad-revenue growth may be anaemic in the fourth quarter due to a nascent recovery in rural demand and still-weak urban discretionary spend.

JM Financial: The brokerage in its report stated that it is commonly known that ad growth and the economic cycle are related.

JM Financial: The brokerage in its report stated that it is commonly known that ad growth and the economic cycle are related.

Brokerage house JM Financial Institutional Securities Ltd expects media and entertainment companies' fourth-quarter (Q4FY23) earnings to remain muted on the back of poor ad-revenue growth.

The brokerage in its report stated that it is commonly known that ad growth and the economic cycle are related.

Broadcasters' ad-revenue growth may be anaemic in the fourth quarter due to a nascent recovery in rural demand and still-weak urban discretionary spend.

Fast-moving consumer goods (FMCG) sales increase (in 4Q) are likely to be volume driven, which means input cost deflation is mostly being passed on, reducing the potential for advertising and promotional (A&P) spending.

The multiple system operators' (MSOs) partial blackouts and shorter workweeks in the fourth quarter had a negative impact on TV viewing and subscription revenues.

"We therefore forecast a muted -12%/+4.5% revenue growth for Zee Entertainment Enterprises Ltd /Sun TV Network Ltd. Zee's earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins could fall about 400 basis points quarter-on-quarter (QoQ) as specific factors compound a weak top-line. Limited blockbuster releases (only Thinuvu for Zee) mean other sales and services would be range bound," said the brokerage.

Let's look at the brokerage's Q4FY23 expectations from the companies under its coverage.

Zee Entertainment Enterprises Ltd (ZEEL)

The brokerage anticipates that ZEEL will report a 12% year-over-year (YoY) revenue drop, driven by a -14%/+3% YoY growth in ad/subscription revenues. Ad revenue from the UAE-based T20 championship ILT20 would not be significant in the first year to offset other drawbacks. Ten days of channel blackouts (by MSOs) during the quarter in an effort to resist pricing rises will have an impact on subscription revenues.

Even if the problem has been fixed, subscription and advertising revenues may have suffered a 3-4% blow.

"We estimate about 400 basis points margin contraction QoQ. Progress on merger – which we believe could complete in 1Q – will be keenly monitored," said the brokerage.

Sun TV Network Ltd

"We expect Sun TV to report 4.5% YoY growth in revenues, albeit flattish core revenue (ad/subscription). Revenue from SAT20, South Africa’s franchise cricket league, could add 400 million to the top-line, as per our estimates. Sun TV’s sustained viewership share should help it maintain ad/subscription revenues, though growth would still be amiss. We expect about 200 basis points margin decline YoY, largely due to lower margins from SAT20, though we expect it to be profitable," said the brokerage.

PVR-INOX

The brokerage expects volume driven 24% QoQ revenue decline (+30% YoY) for PVR-INOX. Due to Pathan's success, the quarter got off to a promising start, but most other films failed to draw audiences. Margin reduction may be caused by lower volume and sequentially flat pricing.

Saregama India Ltd

The firm anticipates that the Music segment would be the main driver of the 4Q revenue growth of approximately 14% YoY (+11% QoQ). Regional film and non-film music content releases will help the music licencing industry grow. Growth, however, might be significant sequentially (+86% QoQ), driven by a few fresh web series debuts on OTT platforms.

"Despite challenging macros, we expect Saregama to maintain its revenue growth guidance of 23-25% compound annual growth rate (CAGR) in the music licensing business in FY24, due to the built-up of a very strong new content release pipeline (partly aided by spill over of few launches from FY23)," said the brokerage.

 

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First Published: 20 Apr 2023, 01:02 PM IST