On the subscription side, companies have started realising the benefits of the new tariff order, largely led by pricing parity between cable operators and DTH.
We expect advertisement growth for the media sector to deteriorate further in 2QFY20 due to weak consumer demand sentiment affecting advertisement spending by key advertisers. Industry body AdEx India, a division of TAM Media Research, commented that advertising on TV declined by 3% y-y in Jan-Jun 2019.
We don’t expect any material improvement in 2Q as our analysis of FMCG segment (~60% of TV ad spending) financials indicate that the revenue growth trend has decelerated sharply.
On the subscription side, companies have started realising the benefits of the new tariff order, largely led by pricing parity between cable operators and DTH. This is likely to continue in the near term, in our view. However, recently the All India Digital Cable Federation decided to provide up to 150 standard definition channels for fee of `130 + GST (earlier 100 channels), which would make cable operators more competitive compared to DTH.
For Sun TV, we expect a 2% fall in ad growth in 2QFY20F due to slowdown in the industry. SUN TV ratings have inched up marginally during the quarter, which should benefit in Q3FY20F.
On domestic subscription, we expect a healthy 17% revenue growth, led by better monetisation from cable segment.
We expect EBIT margin to decline to ~49.1% in 2Q (~63% in 2Q19) due to higher content costs on the launch of its Bengali channel, shift to commissioned content compared to privately producer previously, and investments in the digital segment.
We reiterate our ‘buy’ rating on this stock, as current valuation at ~12.1x FY21F EPS are attractive, in our view. Our target price of `644 implies ~34% upside.