New Delhi: India’s media and entertainment (M&E) companies are more profitable than their global peers as well as companies in other sectors in India, according to a report by audit and consulting firm Ernst and Young (E&Y).
An analysis of the financials of 37 publicly traded companies in the Indian M&E sector shows that gross profits from core operations, or Ebidta (earnings before interest, depreciation, tax and amortization), grew 31% in compounded terms between 2003 and 2007. That is 11 percentage points higher than the growth in the Bombay Stock Exchange’s benchmark Sensex index and the National Stock Exchange’s broader Nifty index in this period
The global M&E group, in which 75 companies were analysed, posted a 15% compounded growth in Ebidta between 2003 and 2007, lower than both FTSE 100 (16%) and S&P 500 (17%) but higher than Nikkei Index (8%).
The Indian M&E group was twice as profitable as its global counterparts.
“Indian M&E firms have shown healthy profitability. There are several large and very profitable privately held firms in this space. When you take them into account, the picture actually gets much better. The limitation of any such study is that only the listed firms can be studied,” said Farokh Balsara, national sector leader, M&E practice, E&Y.
In India, between 2003 and 2007, print enjoyed the highest compounded growth in Ebidta or operating profit margin of 61%, followed by film exhibition (41%), film and TV production (23%) and TV broadcast (13%). The story, however, is different if growth in Ebidta for 2007 is seen in isolation.
In terms of Ebidta margins (a measuring of operating profitability, this is just the operating profit expressed as a percentage of sales) film and TV production led with 36%, followed by print (22%), TV broadcast (21%) and film exhibition (18%). The India study analysed 37 companies across these four segments and segment-wise data for 2001-05 was unavailable.
Telecast and distribution
In a segment that is becoming increasingly competitive, Television Eighteen India Ltd, a listed subsidiary of Network18 Media and Investments Ltd, posted the highest compounded growth in Ebidta of 183.26% between 2003 and 2007, while TV Today Network Ltd, broadcaster of channels such as Aaj Tak and Headlines Today, was the poorest performer, with a corresponding figure of 4.89%.
In terms of profitability, in 2007, Sun TV Network Ltd, the Chennai-based conglomerate with a strong southern footprint, led with an Ebidta margin of 65%, while Dish TV India Ltd, the market leading (in terms of subscriber base) direct-to-home service provider that is the only listed entity in this segment, performed the poorest with –92%. The average Ebidta margin in 2007 for the segment was 21%.
“The good thing about television is that good quality, differentiated content is coming up now unlike in the recent past when the space was stuck with soaps and family dramas,” said Balsara.
Film and TV production
Chennai-based films company GV Films Ltd posted the highest Ebidta growth of 217.87% between 2003 and 2007 in compounded terms, while television content producer Sri Adhikari Brothers Television Network Ltd figured at the opposite end of the profitability spectrum with a corresponding figure of 5.40%. And in terms of profitability, in 2007, film producer Shree Ashtavinayak Cine Vision Ltd enjoyed the highest Ebidta margin of 84% while television content producer Radaan Mediaworks Ltd was at the bottom of the charts (10%).
The average 2007 Ebidta margin for the segment was 36%.
Three of the largest print firms—Bennett, Coleman and Co. Ltd, Kasturi and Sons Ltd and DB Corp. Ltd, publishers of The Times of India, The Hindu and the Dainik Bhaskar, respectively, are privately held. So the segment-wide numbers for the print industry are at best qualified indicators of its performance. Of the firms that were considered, Cyber Media (India) Ltd, a publisher of speciality magazines such as Dataquest, posted the highest Ebidta growth of 37.49% between 2003 and 2007, while Mid-Day Multimedia Ltd, the Mumbai-based publisher of the Mid-Day tabloid, posted the lowest growth of 4.20%.
In 2007, Jagran Prakashan Ltd, the publisher of the Dainik Jagran, India’s largest read Hindi daily, posted the highest Ebidta margin of 25%, against a segment average of 22%, which was matched by HT Media Ltd, publisher of Mint. HT Media’s cumulative Ebidta growth for the five-year period was unavailable as the firm went public only in 2004.
“In print, the big worry is newsprint prices. Rising oil prices coupled with other factors could mean newsprint prices might stay high. I don’t think the print media firms have hedged themselves adequately and some of them, especially the smaller ones, may get hurt,” Balsara said.
Pyramid Saimira Theatre Ltd topped the charts with a compounded Ebidta growth of 346.82% during the period, while Adlabs Films Ltd was at the bottom with 6.79%.
Factors fuelling growth
The M&E sector benefits immensely from overall economic growth as people spent more on entertainment with rising incomes, said Aseem Vohra, a partner at audit and consulting firm Grant Thornton. “The M&E sector typically exceeds the growth rate of the economy. However, there are sector-wise challenges. But broadly, demand for entertainment is increasing and so are revenues from advertisements and subscription. Increased competition is going to bring in greater consistency in the quality of the content,” Vohra added.
The E&Y report on India has a positive outlook on the animation industry and predicts a rise in the number of initial public offerings, listings in the London-based Alternative Investment Market, and private equity investments.
“Despite all the competition we are seeing, India is still an underserved market. There is a lot of potential for media consumption to go up. Ad spends as a proportion of GDP is about 0.4% here whereas globally, it’s about 2.2%,” said Balsara. “Moreover, as regional players work on expanding and becoming a national player, we will see new types of advertisers and readers coming in from unconventional demographics,” he added.
As an investment hub, the M&E sector is a long-term story, said N. Prasad, deputy CEO at Sundaram BNP Paribas AMC Ltd, which launched a thematic mutual fund, Entertainment Opportunities, on 24 April. The fund closes on 20 May.
“India’s demographics favour the media industry. In the US, the M&E industry exploded in the 1970s and 1980s, when the baby boomers started spending. Similarly, there will be a lot of spending on entertainment in the long term. We are in this space because it is a good long-term story,” Prasad added.