Broadcasters

April 13, 2020

Rating Matrix
Bracing for washout FY21 but FY22 may be bumper Rating
Old New
Broadcasters are likely to witness a steep impact on revenues and earnings
Zee Entertainment Buy Hold
on account of economic standstill during the lockout. The major segment to
be hit will be advertisement given the respective client business challenges Sun TV Hold Buy

Sector Update
and further aggravated no fresh GEC content inventory due to lockout. TV Today Buy Buy
Subscription revenues, however, will be stable, albeit growth momentum
will taper on a high base. Consequently, we anticipate a washout FY21 for
broadcasters. However, an economic recovery thereafter in FY22 coupled Target price (|)
with strong balance sheets of broadcasters drives our confidence and post Target price
sharp stock prices correction, we now turn constructive on the segment. CMP Upside
Old New

Ad revenues to be hit hard by Covid-19 in FY21 Zee Entertainment 134 345 150 12%
Sun TV 345 510 410 19%
Advertisement revenues of broadcasters have been under pressure in FY20
on account of macroeconomic challenges. Going into FY21, the Covid-19 TV Today 203 300 250 23%
impact is expected to result in a washout April, 2020 followed by a slow
recovery and normalisation only by H2FY21 led by a benign base and
gradual recovery in economy. April revenue hit will also be on account of a
steep loss of market share of most GECs to Doordarshan that is now thriving
on earlier year hits replay. For CY20, a Ficci EY report had pegged the
broadcasting ad growth at meagre ~5%. We note that ad growth for CY20
for Zee, Sun and TV Today was 11%,-2.7% and 6.8%, respectively. We

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expect FY21 ad revenues for broadcasting at -5%. For FY21, we bake in ad
growth for Zee, Sun and TV Today at -4%,-4.2% and 0.1%, respectively.
However, the bump in ad revenues in FY22 will be at 20%, 18% and 15%,
respectively, for Zee, Sun and TV Today, respectively.

Subscription better off under the circumstances

The monetisation of NTO-1, led to strong subscription revenue growth for
broadcasters in FY20YTD. Zee reported a staggering 30.3% domestic
subscription growth in M9FY20 while for Sun TV it was 16.3%. While the
NTO-2 implementation is likely to be shaved off given the condition of
maximum priced channels to be included in bouquet as well as limitations
on discounting, it is currently being pursued legally. We expect the
subscription revenue trajectory to be stable, albeit lower on high base, Research Analyst
notwithstanding Covid-19 scare. We bake in domestic subscription growth
of 5% and 10% for FY21 and FY22, respectively, for Zee. For Sun TV, we Bhupendra Tiwary, CFA
[email protected]
build in 4% and 10% subscription growth for FY21 and FY22, respectively.

Valuation & Outlook Amogh Deshpande

[email protected]
One of the key advantages of broadcasters has been stronger balance
sheets, which is a paramount factor under current situation. The stock prices
have also corrected sharply across the board. We now upgrade Sun TV to
BUY, valuing it at 10x FY22 EPS at | 410/share. We also maintain BUY rating
on TV Today with a revised target price of | 250/share (8x FY22 EPS). We
downgrade Zee to HOLD with a revised target price of | 150/share (8x FY22
EPS). Lower multiple and downgrade for Zee is on account of continued
pressure on receivables, related party dues and now decision of investment
of | 522 crore over time in its subsidiary, Margo Networks (SugarBox) on
which we still await clarity. Negative news flows on promoter group also
remain an overhang.

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Company wise impact

Zee Entertainment
We now bake in ~14% and ~19% cut in EBITDA and PAT estimates,
respectively, for FY21 with a steep cut in ad revenues and margins on
account of Covid-19. For FY21, we bake in ad decline of 4% vs. 12% growth
earlier. However, the bump in ad revenues in FY22 is expected to be at 20%
vs. 10% earlier. We lower the FY21 margins estimate to 27.8% in FY21 vs.
30%, earlier. We downgrade Zee to HOLD with a revised target price of
| 150/share (8x FY22 EPS). Lower multiple and downgrade is on account of
continued pressure on receivables, related party dues and now decision of
investments of | 522 crore over time in its subsidiary, Margo Networks
(SugarBox) on which we still await clarity. Negative news flows on promoter
group also remain an overhang.
Exhibit 1: Change in estimates
FY20E FY21E FY22E
(| Crore) Old New % Change Old New % Change Old New % Change
Revenue 8,272.7 7,950.9 -3.9 8,929.6 7,710.6 -13.7 9,768.8 8,997.2 -7.9
EBITDA 2,502.7 2,343.8 -6.4 2,678.9 2,146.8 -19.9 2,979.5 2,651.9 -11.0
EBITDA Margin (%) 30.3 29.5 -77 bps 30.0 27.8 -216 bps 30.5 29.5 -103 bps
PAT 1,635.3 1,525.0 -6.7 1,841.6 1,446.4 -21.5 2,145.3 1,817.1 -15.3
EPS (|) 17.0 15.9 -6.7 19.2 15.1 -21.5 22.3 18.9 -15.3
Source: Company, ICICI Direct Research

Sun TV
We now bake in ~12.5% and ~16.5% cut in EBITDA and PAT estimates,
respectively, for FY21 with a steep cut in ad revenues and margins on
account of Covid-19. For FY21, we bake in ad decline of 4.2% vs. 6% growth
earlier. However, the bump in ad revenues in FY22 is expected to be 18%
vs. 10% earlier. We lower the FY21 margins estimate to 61.1% in FY21 vs.
63.5%, earlier. We now upgrade Sun TV from HOLD to BUY, valuing it at 10x
FY22 EPS at | 410/share.
Exhibit 2: Change in estimates
FY20E FY21E FY22E
(| Crore) Old New % Change Old New % Change Old New % Change

Revenue 3,584.2 3,506.4 -2.2 4,028.8 3,526.3 -12.5 4,372.4 4,058.1 -7.2

EBITDA 2,288.4 2,226.6 -2.7 2,556.6 2,155.2 -15.7 2,804.3 2,565.2 -8.5
EBITDA Margin (%) 63.8 63.5 -34 bps 63.5 61.1 -234 bps 64.1 63.2 -92 bps
PAT 1,477.9 1,437.3 -2.8 1,635.0 1,365.7 -16.5 1,781.4 1,621.5 -9.0
EPS (|) 37.5 36.5 -2.7 41.5 34.7 -16.5 45.2 41.1 -9.0
Source: Company, ICICI Direct Research

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TV Today
Given the Covid-19 impact, we cut the EBITDA estimates for FY21E by
~17.9%. The subsequent impact on earnings would be ~18.5% For FY21.
We bake in muted ad growth of 0.1% vs. 10% growth earlier. However, the
bump in ad revenues in FY22 is expected to be 15%. We maintain BUY rating
on TV Today with a revised target price of | 250/share (8x FY22 EPS).
Exhibit 3: Change in estimates
FY20E FY21E FY22E
(| Crore) Old New % Change Old New % Change Introduced
Revenue 832.9 822.2 -1.3 910.1 823.6 -9.5 939.3
EBITDA 214.5 208.3 -2.9 252.6 207.3 -17.9 254.8
EBITDA Margin (%) 29.1 25.3 -377 bps 30.9 25.2 -573 bps 27.1
PAT 138.9 135.2 -2.7 179.2 146.1 -18.5 185.2
EPS (|) 23.3 22.7 -2.7 30.1 24.5 -18.5 31.0
Source: Company, ICICI Direct Research

Price Charts
Zee Sun TV TV Today

630 13000 1000 13000 600 14000

540 900
10400 800 10400 11200
450 700 450
360 7800 600 7800 8400
500 300
270 5200 400 5200 5600
180 300
2600 200 2600 150 2800
90 100
0 0 0 0 0 0
Sep-17

Sep-18

Sep-19
Sep-17

Sep-18

Sep-19

Mar-19

Mar-20

Sep-17

Sep-18

Sep-19
Mar-17

Mar-18
Mar-19

Mar-19
Mar-17

Mar-18

Mar-20

Mar-17

Mar-18

Mar-20
TV Today LHS)
Zee (LHS) Nifty Index SUN TV(LHS) Nifty Index
Nifty Index

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RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

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