FY21 likely to be a washout year for media companies

Low valuations, which helped Wednesday’s rebound, come as a solace

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 1820 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.