Beaten down shares show more downside to Indian media firms

Beaten down shares show more downside to Indian media firms
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First Published: Mon, Sep 22 2008. 10 18 PM IST

Updated: Mon, Sep 22 2008. 10 18 PM IST
New Delhi/Mumbai: Indian media and entertainment industry stocks have taken a far worse hammering than the broader stock market this year, with many hovering close to 52-week lows even as they enter into seasonally strong revenue, festival months.
Of the 19 major listed media and entertainment companies on India’s stock exchanges, 13 have lost more than half their market capital since 8 January, according to a Mint analysis. The average market cap loss is 55%, higher than the 33% slump in the Sensex, the Bombay Stock Exchange (BSE) benchmark.
Most media stocks are mid caps, with only two large caps in the sector—Sun TV Network Ltd and Zee Entertainment Enterprises Ltd. Mid-cap stocks refer to companies with market value of between Rs1,000 crore and Rs5,000 crore. The media sector has also fallen more than the BSE Mid-Cap Index, which has declined 47%.
There seems to be little respite ahead of the third quarter, which typically produces strong earnings due to high advertising spending in the festive season.
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“A lot of the losses are corrections from the inflated valuations during the market peak,” said Anand Shah, an analyst at Mumbai-based Angel Broking Ltd. “A lot of it is also related to the volatility of the market. In publishing, newsprint remains a concern and the expensive inventory will start kicking in from this quarter, which means most newspaper companies are likely to post a decline in profits.”
Media stocks are deemed high beta stocks, which usually outperform a rising market and underperform a falling one. Beta is a measure of a stock’s price volatility in relation to the overall market. Higher the beta, higher the volatility.
Since January, three firms have lost at least 70% of their market cap: film production and exhibition companies Adlabs Films Ltd (76%), Pyramid Saimira Theatre Ltd (77%) and Essel Group’s television distribution arm, Wire and Wireless India Ltd (78%).
Other fallen stocks include direct-to-home television operator Dish TV India Ltd (67%), multiplex operator Inox Leisure Ltd (64%), production facilities provider Prime Focus Ltd (69%) and broadcaster Television Eighteen India Ltd (60%).
In print, Deccan Chronicle Holdings Ltd (53%), Jagran Prakashan Ltd, (55%) and HT Media Ltd (53%) also posted big drops. HT Media is the publisher of Mint.
Some see little upside noting that Bennett, Coleman and Co. Ltd, the country’s largest publisher—of The Times of India and The Economic Times—paid 33% less advance tax for the fiscal second quarter, compared with the same period last year, as Mint reported on 18 September.
CEO Ravi Dhariwal says that the reduced payment isn’t necessarily linked to the company’s profit expectations.
“The advance tax we have paid could be lower for a variety of reasons, none of which are necessarily linked to our expectations for the year,” he maintained. “But, the fact is, growth has slowed down and the cost of doing business has gone up. Advertising is still growing, but the rate of growth has slowed.” The publisher is closely held.
The average price-earnings (P-E) multiple of the 19 stocks also dropped sharply from 62.35 in January to 30.63 now. During this period, the P-E multiple of the Sensex dropped from 28.51 to 17.45 and that of the BSE Mid-Cap Index fell from 27.31 to 12.9. The P-E multiple is a measure of how expensive a stock is.
Despite such steep falls, analysts say the sector as a whole doesn’t offer a great buying opportunity for investors.
In a recent report, analysts at Mumbai-based Enam Securities applied stress-case assumptions and derived a “high comfort-zone entry price.”
A stress-case valuation assumes that the business environment is much worse than what it currently is and then derives a price at which the stock would be trading under those conditions. If the stocks hit those prices, the recommendation implies, investors can be comfortable buying those stocks.
On 9 September, the date of the release of the report, all the four stocks analysed—HT Media, Sun TV, Zee Entertainment Enterprises and Jagran Prakashan—were trading 10-20% above Enam’s stress-case value.
The stress-case range was the range of three values that came out of three different methodologies. One was a discounted cash flow mechanism considering the worst-case assumptions, while two other values were the stock price taken at the historical low P-E multiple and historical low enterprise value/Ebitda (earnings before interest, taxes, debt and amortization) multiple.
“Our stress-case methodology, while subjective, helps to highlight some of the stocks we believe to be trading at attractive entry points,” said Chirag Negandhi, a co-author of the report, in an emailed response to questions from Mint.
“Purpose is to determine high comfort-zone entry points in this bear market where prices are so volatile that the dissonance between market prices and fundamentals makes mouth-watering prices difficult to visualize at eye-watering moments.”
The report said that in the short term, an economic slowdown would hamper advertising growth, while intense competition in broadcasting, specifically in the general entertainment and news and regional segments, will fragment the market and drive up costs. The report, however, said that the long-term prospects for the sector remain positive, as India’s advertising spending to gross domestic product (GDP) ratio (0.4%) was much lower than the world average (0.9%).
Even Angel Broking’s Shah, maintains a “buy” recommendation on Jagran Prakashan Ltd, HT Media and TV Today Network Ltd, with target prices of Rs93, Rs140 and Rs117, respectively. He is neutral on Deccan Chronicle.
The stock that lost the least during the January-September period is UTV Software Communications Ltd (11.49%), a diversified media firm with interests in film production, broadcasting and new media.
“We are in favour of a stock-specific approach, so I’d say looking at 52-week lows or highs is not a good idea in such a volatile market and investors should go by the valuations in the backdrop of how much earning visibility these stocks provide at this point,” said Saurabh Gurnurkar, an equity analyst at Kotak Securities Ltd.
Gurnurkar maintains a “buy” recommendation on Zee News Ltd and Jagran Prakashan and an “accumulate” on HT Media and Zee Entertainment.
sruthijith.k@livemint.com
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First Published: Mon, Sep 22 2008. 10 18 PM IST
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