After three years of negative growth, it is expected
that ad spend will grow by 12 per cent to 15 per cent
over the next few years.
are expecting that the recession in the ad spend will
halt as the economy picks up steam. Says an ABN-Amro
Asia Equities (India) report: "Our discussions
with various companies in the infrastructure sector
indicate that the pick-up in economic activity is quite
reports said that almost all engineering companies see
clear visibility of strong economic growth for the next
three years at least. Should this happen, these companies
will be the early beneficiaries.
current low interest rate environment is driving consumer
demand. Car sales are soaring as finance is easily available
and affordable (consumers are availing of the discounts
offered by various finance companies). Excellent monsoons
this year should propel rural consumption, and hence
this, coupled with rising business confidence, make
us confident about strong GDP [gross domestic product]
growth from this year, signalling increased ad spend,"
ABN Amro Securities said. This will lead to more ad
spend by companies.
also said that Zee Telefilms will be a prime beneficiary
of this development. "While the market is pressuring
the Zee stock given the lack of visibility on the implementation
of CAS [conditional access system], we are optimistic
about the company."
will gain from the expected cyclical upturn in ad spend,
after a three year recession. It has set a target price
of Rs 202 for the Zee stock against Rs 100 earlier,
showing 96-per cent upside from the current levels.
Bull case is based on assumptions of a pick-up in ad
revenue on the back of consumption-led demand. Any external
factor causing a slowdown in economic growth means the
anticipated recovery might not materialise, the report
also pointed out that the market is too narrowly focused
on CAS implementation, completely ignoring the fact
that Zee will be a prime beneficiary of strong economic
growth. The market is also currently focusing on cyclicals
like engineering, steel and auto stocks because they
will be the early beneficiaries of strong economic growth.
firm is expecting that the Zee stock will be re-rated
as revenue visibility improves. Zee has historically
traded at a P/E (price earnings) multiple of 15-25x
on one-year forward earnings, except during the bubble
period of 1999-2000. Comparing Zee with European media
stocks, the stock is undervalued.
1999-2000, Zee enjoyed a near monopoly on the cable
network, garnering huge ad revenues. Subsequently, competition
from Star TV and Sony Entertainment took the wind out
of Zee. This, coupled with a crash in media and convergence
assets worldwide in 2000, put a huge pressure on Zee's
financials, and the stock price reacted accordingly.
early 2002, ad revenue was the key driver of Zee's growth,
and consumer expenditure (or subscription revenue) came
a distant second. This is despite the latent potential
of consumer expenditure and it being the largest component
of the global media sector revenues.
late-FY02, Zee converted its main Hindi channel into
a pay channel, which boosted its subscription revenue,
albeit on a low base. Subscription revenue helped the
company offset the pressure from low ad revenue, a direct
fallout of a recession in ad spend and low-content quality.
of reports on Zee Group