By Karan Taurani @ Elara Capital

Inflation seems to be acting as a speed-breaker in the Indian M&E sector’s growth, especially the TV segment, which was first off the block on the way to recovery after the COVID-19 virus hit the sector.

Media Sector Q1FY23 Preview:TV, Exhibitors and Radio segment – Inflation, a speed breaker amidst growth acceleration*

In the TV segment inflation is playing a spoilsport on ad revenue.

TV was the first traditional medium to recover to pre-COVID levels in FY22, however, the recent inflationary pressure has seen a negative impact on ad. spends recovery; we expect ad revenue growth to be lower vs pre COVID levels, due to; 1) macro weakness and inflationary headwinds in the month of May & June and 2) reduced ad spends from FMCG and new age internet companies. We expect overall revenue to grow 4.7 percent/23.2 percent/23 percent YoY, for Z/SUNTV/TVT respectively; ad spends for Z/SUNTV/TVT are slated to grow 12.7%/36%/28% YoY, on a low base, as they remain lower (2% to 10%) vs pre COVID levels.

We expect operating profitability to be muted for all broadcasters due to content investments and lower ad. revenue. Subscription revenues are expected to remain flat for Z/SunTV YoY. Overall revenue growth for Z is mere 4.7% YoY, negatively impacted by lower other operating income, (Dhaakad film); while net profit is expected to witness a growth of 26.4% driven by the redemption of preferential shares (paid off in Q4FY22).

Exhibitors: Strong recovery in the post COVID era

Multiplexes are expected to outperform vs all earlier quarters in the post pandemic era led by successful run of movies like RRR/ KGF chapter 2 / Bhool Bhulaiyaa 2.

 Large Bollywood content was expected to report a stronger performance in Q1FY23, however it failed to perform on the Box Office impacting revenue growth negatively for PVR/INOL, offset by positive surprise from regional and Hollywood content.

We expect box office revenue to grow 34% (excluding SPI Cinemas in Q1FY20)/33% vs pre Covid levels (Q1FY20) for PVR/INOL. Other metrics like ATP/SPH had already exceeded the pre-Pandemic level (Q1FY20) by 13%/13% in Q4FY22 led by traction in Hollywood and other premium content. For Q1FY23 we expect ATP/SPH to grow 23%/20% respectively (average of PVR and Inox), vs pre COVID levels, helped by films like RRR/ KGF chapter 2 / Bhool Bhulaiyaa 2.

Ad revenue recovery towards pre COVID levels remains a challenge, we expect ad revenue to recover towards 70% vs pre pandemic (Q1FY20); and continue to believe that this segment will be the last one to recover, due to high exposure towards retail and government advertising. We estimate an EBITDA margin of 33%/34% for PVR/Inox (incl INDAS), led by complete recovery in box office revenue and improvement in operating metrics (ATP/SPH). In terms of screen addition, we expect the momentum to pick up from Q2FY23.

Radio: still struggling to reach pre pandemic levels

Radio medium is estimated to report slowest growth vs other forms of traditional media, as we expect recovery towards pre COVID levels to be slightly elongated.

COVID has accelerated the shift towards digital, which has further negatively impacted consumption patterns for this medium. Expect the radio revenue to recover around 73% – 75% (vs pre pandemic levels). We expect ENIL/MBL to report revenue growth of 132%/152% YoY (decline of 27.1%/26% vs Q1FY20 – pre pandemic levels); in terms of ENIL, expecting non-radio segment to recover at around 75% (vs pre pandemic levels), helped by normalisation of events/activations/concerts; we believe ENIL’s non radio business will continue to report traction over near term. We expect ENIL/MBL to report an EBITDA Margin of 14%/17.5% in Q1FY23E.

(Photo courtesy BARC India)