Best Media Stocks to Buy in India

Last Updated – December 2020

Best Media Stocks to Buy in India

In this article, we will cover,

– An overview of the Media and Entertainment Industry in India
– A comprehensive list of the best media stocks to buy
– Different sectors in the M&E Industry
– COVID-19 Impact on the M&E Industry
– A model portfolio providing a sizeable exposure to some of the best media stocks to buy
– Portfolio companies
– A table consisting of an evaluation of the best media stocks to buy based on specific parameters.

Overview of the Media and Entertainment Industry in India

The media and entertainment industry in India consists of many different segments such as television, print, and films. It also includes smaller segments like radio, music, out-of-home advertising, animation, gaming and visual effects and the industry presents a huge range of opportunities to grow across different segments. India has one of the most diverse media industries, with over 850 TV channels and 17,000 newspapers. With a population of 130 crore, household television penetration of 89%, internet subscriber base of 72.3 crore and nearly 40 crore smartphone users, India’s telecom industry is set to become the primary platform for content distribution and consumption. The fast growing mobile environment in India is helping the media and entertainment companies to reach a much larger market.

Summary Table of Best Media Stocks to Buy

Sr. No Company Name BSE Scrip Code NSE Symbol CMP as on 4th December, 2020 Rating Industry
1 Zee Entertainment Enterprises 505537 ZEEL 206.85 1 M&E- TV Broadcasting
2 Sun TV Network 532733 SUNTV 443.8 4.5 M&E- TV Broadcasting
3 PVR Ltd 532689 PVR 1338.55 0.5 M&E- Film Exhibition
4 Network 18 Media & investment 532798 NETWORK18 36.7 0.5 M&E- TV Broadcasting
5 Inox leisure 532706 INOXLEISUR 279.85 0.5 M&E- Film Exhibition
6 Dish TV 532839 DISHTV 10.95 0.5 M&E- TV Broadcasting
7 DB Corp 533151 DBCORP 87.8 2 M&E- Printing & Publishing
8 Jagran Prakashan 532705 JAGRAN 41.5 2 M&E- Printing & Publishing
9 GTPL Hathway 540602 GTPL 124.7 1 M&E- TV Broadcasting

Different sectors in M&E Industry

Traditionally media companies relied on distributors or resellers to reach their end consumers. In a digitalized world every media segment can directly connect with the consumer and stronger the direct relationship, the better the engagement and monetization. Hence greater value is attributed to D2C relationships and D2C has emerged as the new metric to evaluate a media company. D2C is not merely visitors on a web page or number of app downloads but is defined as that set of customers for whom the company has depth of data and can be uniquely presented to the advertiser / sponsor. Emerging opportunities in India in wireless broadband connectivity and infrastructure coupled with favourable economic growth and young demographics are expected to present new growth prospects to the industry.

The TV broadcast sector is poised for good growth despite the dull numbers posted by various segments of the economy lately. As of 2019 cable dominates the Indian distribution ecosystem with a 52% share followed by DTH with a 28% share. Industry reports also state that TV penetration among all households is at 66% in the calendar year 2018. About 88% of all homes are now fully digitized. TV still has a long road ahead of itself in the country. Indians still spend an average 3 hrs 42 mins watching TV everyday. However, Digital is growing at a fast pace alongside posing a risk to the traditional platform. In recent news, TRAI’s new tariff order modification (NTO 2.0) aims to reduce the pricing disparity of channels within a bouquet which in effect shall reduce either channels within the bouquet or the price of the bouquet. This has the potential to impact bouquet reach and channel subscription revenue.

India’s radio sector is fairly consolidated due to cost economies of scale and higher entry barriers. As a result, 80% of revenues and 70% of stations are held by the top 6 networks. This consolidation coupled with the expansion of radio in Phase III (to over 400 stations in 115 towns), means that a single network can now offer an advertiser significant reach and create a viable add-on to print.

Global print media industry has been on the decline and losing consumers and thus advertising revenues to alternate mediums. On the contrary, as the oldest pillar of the M&E industry, Indian print media has not only survived through peaks and troughs over a period of time but continues to grow defying the global trend, but the question is whether it will continue to do so. With a shift to digital, the future prospects (and thus terminal values) of print media continue to be shrouded in an air of uncertainty. Indian print media had been caught up in the crossfire of demonetisation, GST, an economic slowdown and Government clampdown on classified ads but it may still have a few more years of growth ahead of it. The factors that differentiate the Indian print media industry from its global peers is local content, a unique distribution model, low literacy, cultural habits etc. 

The cinema business model has evolved from being a single-screen theatre to multi-screen multiplexes. Despite a premium, more and more people are preferring multiplexes over single-screen theatres because it gives them a variety of different experiences to choose from be it for comfortable seating, better screen quality, choices in food and beverages, or ultra-premium movie experience. Thus, despite the emergence of online platforms such as Netflix and Prime, people still go to multiplexes just for a great cinematic experience.  Multiplexes in India are witnessing a very rapid growth. With 31% market share of the screens, they account for 55% share of Box Office Collections. The average spending per household on movies in India has grown from between Rs.368-388 per household in FY 2014-15 to approximately between Rs.433 – 453 per household in FY 2017-18.

The average spending on movies is expected to reach between Rs. 589-609 per household in FY 2022-23. With a population of more than 130 crore and a median age of 28 years, there is a humongous market for media and entertainment. . India’s current cinema screen penetration is one of the lowest in the world at 8 screens per million population. Even with such a huge market, there are only two listed multiplex chains with a pan-India presence. Before buying multiplex stocks, investors should look at the company’s geographical presence, capex plan, occupancy levels, spends per head, footfalls, segment-wise revenue (revenue from food & beverages, advertising, etc) and debt levels.

COVID-19 Impact on M&E Industry

COVID-19 Impact: While it is too early to gauge the economic impact of the coronavirus outbreak, various segments of M&E have got affected by postponement/cancellation of events, impact on theatrical revenues due to shutdown of cinemas, stoppage of print production/circulation in impacted areas, newsprint import blockage, stoppage/delay of content production and post production, etc. Positives could include increased time spent with media through OTT content at home. Nevertheless, with robust media consumption underpinned by demographic trends and improving content availability as well as access-economics, this key sector of the Indian economy is expected to bounce back along with macro-environment in due course.

The below mentioned model portfolio includes the best stocks in the media & entertainment industry to invest in for the long term which checks the boxes of fundamentally strong companies.

Model Portfolio Companies

The below mentioned model portfolio includes the best stocks in the media & entertainment industry to invest in for the long term which checks the boxes of fundamentally strong companies.

SUN TV

SUN TV is one of the largest Television Broadcasters in India operating Satellite Television Channels across four languages Tamil, Telugu, Kannada and Malayalam and also airing FM Radio Stations across India. It continues to have sustained and increased viewership of its channels with Sun TV being the most watched channel in India. Due to the covid-19 pandemic, broadcasters are likely to witness a steep impact on revenues and earnings on account of economic standstill during the lockdown. The major segment to be hit will be advertisement given the respective client business challenges and no fresh content inventory due to lockout.

However, subscription revenue is growing at a rapid pace. At a time when many companies in the Media sector are facing a cash crunch, Sun TV has a better liquidity position with INR 7bn in cash and zero debt which would help it maintain a stronger position in the current crisis. Sun TV’s leading channels have witnessed significant improvement in viewership ratings across genres in the current lockdown phase as well, and the company is likely to hold its ratings going ahead. The company’s video on demand service – Sun Nxt has a subscriber base of over 15 Mn and the OTT segment has turned profitable.

Strong line of content and movie library is in the pipeline for OTT platform. Majority of the revenue generated in the television industry is through advertisements, followed by subscription. Strong growth projected in DTH, Digital Cable segment would result in substantial increase in subscription revenue over the years to come. By virtue of the consistently high TRPs, popularity of content and its established presence, the company has significantly bargaining power over its content providers. This in turn, has aided in control over telecasted content. The company has also reported healthy profit margins with an OPM of 68.9% and NPM of 37.5% aided by its scale, high bargaining power and negligible interest cost.

The company’s dividends remain high at over 35% of its profits in the last three years and currently has a dividend yield of 6.5% which is excellent for dividend seekers. On the negative front, Sun TV has relatively high working capital intensity due to delays in actual payment receipts from advertising agencies and DTH/cable operators, beyond the credit period offered. The company derives over 40% of its revenues from advertisements which are also dependent on the macro-economic environment. In addition, rising competitive intensity with increase in the total number of channels in the mass content and niche segments could also pressurize the company’s advertisement revenues.

PVR

PVR is the largest multiplex operator in the industry with 176 properties and 845 screens across India as of March 2020. The acquisition of SPI Cinemas having 76 screens in August, 2018 further strengthened PVR’s leadership position. PVR, being the market leader, is able to command strong brand value and has established strong relationships with various real-estate developers which enables it to launch properties at premium locations. This in turn leads to higher average ticket prices and adequate occupancy levels. The occupancy levels and spend per head for PVR is at 36.1% and Rs 100 respectively. However, the operating metrics over the near future are expected to witness moderation on account of COVID-19.

Healthy occupancy levels and high average ticket prices have led to strong growth in operating income and strong profitability over the years. Also, PVR completed a Qualified Institutional Placement (QIP) in October 2019 leading to an inflow of Rs. 500 crore.

A significant part of the proceeds have been utilised towards prepayment of existing debt obligations thereby keeping the capital structure healthy. However, lower occupancies/temporary screen closures and increased debt availed to maintain liquidity because of the impact of COVID-19 may result in some deterioration in the financial profile over the near term. Further the cinema halls have remained closed from March 2020 in-line with government instructions leading to uncertainty of re-opening which needs to be monitored.

PVR continues to be exposed to the inherent risks in the movie-exhibition industry gaining popularity such as Netflix & Amazon Prime and other forms of entertainment from the OTT medium. While movie exhibitors will suffer in the short term and the pace of recovery will be slower, the crisis could lead to further consolidation in the sector as single screens would close due to the financial strain and uncertainty and multiplexes could start to gain market share.

INOX Leisure

Inox Leisure is the first multiplex chain with a national presence in the industry to be Net-debt free. It is operating in 68 cities with 626 screens across 147 multiplexes. It is the second-largest multiplex operator having scaled up through organic and inorganic expansion in the last decade from two properties (eight screens) in FY03 to 147 in FY20. Its strong market position is reflected in its ability to maintain ticket prices (average ticket price was Rs 200).

INOX continually invests in upcoming technologies to enrich the customer experience. To provide an extraordinary experience to moviegoers, Inox has partnered with IMAX to upgrade their technology. The company has an occupancy rate of 28%. In order to improve its footfalls and occupancy rate, the management has undertaken several initiatives such as tie-ups with sports and music events, increase F&B counters, installation of kiosks for F&B orders, on-seat delivery, INOX loyalty program, and reducing seats per screen by increasing focus on the quality of cinematic experience.

In order to improve its market share, Inox has already laid out its aggressive expansion programme for next 5 to 7 years. It plans to add around 75-85 screens every year with a capital expenditure of Rs 250 to 300 crore. Inox Leisure Ltd. forms a part of Inox Group of over 90 years old. Being backed by an esteemed group gives the company a great deal of credibility in the markets. The emergence of online media platforms creating another alternative to cinema business, economic slowdown, piracy, competition and prolonged impact of Covid-19 are key risks for the company.

Risks & Challenges posing the M&E sector 

The M&E sector is diverse and encompasses different segments each performing and operating in environments that have a unique range of risks. In no other industry is the pace of change greater than in the media and entertainment sectors. Shifts in both the nature and scope of this sector means that businesses need to constantly evaluate new risks in the Media & Entertainment Industry and assess their exposure.

The advent of Digital and launch of multiple new platforms led by cheaper bandwidth, significant viewership expansion caused fragmentation of the consumer base across platforms. These higher churn rates and lower stickiness provide an opportunity to wean away viewers from traditional dominant players in television, but also poses a challenge as monetisation models are still evolving. The COVID-19 pandemic is a major black – swan event which has dragged the economy and the advertising environment as a result. The immediate impact on the ad-driven media industry will be significant; however, an increasing proportion of subscription revenues will help. 

However, with people being homebound, consumption of media & entertainment and digital media in particular will see considerable growth. Greater demand will be seen for at home entertainment with subscription models and gaming. Segments such as films could see a slower recovery but fundamentals remain intact for the long term.

Watch our video on how to analyse and pick Media stocks for investments

Model Portfolio

In order to get exposure to Best Media stocks, you need a total of Rs 21,937 for the below curated portfolio as of 4th December, 2020.

Company CMP as on 4th December, 2020 Quantity Amount Weightage (%)
Sun TV   443.8 23 10207.4 46.5%
PVR 1338.55 5 6692.75 30.5%
INOX 279.85 18 5037.3 23.0%
Total     21937.45 100 

The below table covers some of the most important factors while evaluating Media stocks such as return ratios including RoE and RoCE, operating margins, sales and earning growth and market cap among others.

Sr. No Company Name BSE Scrip Code NSE Symbol CMP as on 4th December, 2020 Rating Industry Market Capitalization (Rs Crore) Price/Earnings Dividend Yield (%) Debt/Equity Return on Equity (%) Return on Capital Employed (%) Net Worth (Rs Crore) Operating Margin (%) Topline- 3 Years CAGR (%) Bottomline- 3 Years CAGR (%) No of Screens Occupancy Rate (%) Average ticket price (Rs) Spend per head (Rs) Subscription Revenue contribution (%) Adveritsement Revenue contribution (%)
1 Zee Entertainment Enterprises 505537 ZEEL 206.85 1 M&E- TV Broadcasting 20429.93 0.14 0.04 6.49 13.58 9422.7 5.12 8.11 -21.49 29.1 63.5
2 Sun TV Network 532733 SUNTV 443.8 4.5 M&E- TV Broadcasting 18516.07 15.15 5.32 0 22.61 29.88 6316.65 66.57 9.98 7.94 39.6 42.7
3 PVR Ltd 532689 PVR 1338.55 0.5 M&E- Film Exhibition 8072.36 0.27 3.58 1.57 20.39 1369.5 17.29 17.23 -38.05 845 34.90% 204 100
4 Network 18 Media & investment 532798 NETWORK18 36.7 0.5 M&E- TV Broadcasting 3800.42 17.6 0 6.86 11.55 11.29 442.66 13.34 53.16 31.66
5 Inox leisure 532706 INOXLEISUR 279.85 0.5 M&E- Film Exhibition 3287.47 0.34 4.76 1.93 15.6 582.16 39.88 16.86 -21.69 626 28.00% 200 80
6 Dish TV 532839 DISHTV 10.95 0.5 M&E- TV Broadcasting 2513.36 4.73 0 0.19 5.87 10.19 3993.26 62.17 5.67 49.68
7 DB Corp 533151 DBCORP 87.8 2 M&E- Printing & Publishing 1499.36 17.4 11.67 0.17 15.8 19.27 1659.21 14.96 -0.51 -9.72
8 Jagran Prakashan 532705 JAGRAN 41.5 2 M&E- Printing & Publishing 1240.09 22.46 0 0.17 13.72 12.9 1893.22 14.19 -2.79 -7.44
9 GTPL Hathway 540602 GTPL 124.7 1 M&E- TV Broadcasting 1442.34 8.15 2.34 0.19 18.62 27.82 780.7 20.43 37.97 69.93

Our Collection of Best Stocks to Buy Other links you may find useful:

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