ICICI Securities upgrades ZEE, Sun TV to ’Buy’ on expectations FMCG firms will spend more on advertising

ICICI Securities upgrades ratings for Sun TV Network and Zee TV to 'Buy', citing medium-term benefits from increased ad spending by FMCG companies. Target prices raised for both stocks.

A Ksheerasagar
Published13 Jun 2024, 12:34 PM IST
Despite high internet penetration in rural India, television remains the primary medium for reaching rural consumers.
Despite high internet penetration in rural India, television remains the primary medium for reaching rural consumers.(Pixabay)

Domestic brokerage firm ICICI Securities in its latest note has upgraded its rating for both Sun TV Network and Zee Entertainment Enterprises from 'Add' to 'Buy' and also raised their target prices. The brokerage cites the expectation that these companies will benefit in the medium term as FMCG companies increase their ad spending.

The brokerage has lifted the target price on ZEE to 195 apiece from an earlier price of 155 as it believes the stock should re-rate given the potential tailwinds for TV broadcasters.

Also Read: Prediction: These could be the best-performing value stocks through 2030

For SUN TV, the brokerage revised the target price higher to 1,000 per share from 758, anticipating significant growth in ad revenue. Additionally, it expects steady growth in revenue from cricket franchises. The brokerage believes there is further potential for re-rating given the positive outlook for the media sector.

According to the brokerage, advertising and promotion (A&P) spending as a percentage of revenue increased by 180 basis points year-on-year for the top five FMCG advertisers in India in FY24. However, the revenue impact on general entertainment channel (GEC) TV broadcasters was limited due to a strong cricket season diverting ad spend and a shift towards digital media for promoting premium product categories amidst rural market weakness. 

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If rural stimulus accelerates in the medium term, FMCG companies are anticipated to boost advertising expenditures on GEC TV broadcasters, according to the brokerage. The government's approval of assistance for constructing 30 million homes (20 million in rural areas) under the PMAY scheme and sanctioning INR 200 billion as the 17th installment of the PM Kisan Nidhi Scheme underscore this potential. 

The brokerage's analysis showed a steady decline in ad spending for FMCG companies, from 12% of sales in FY11 to 8.4% in FY24. However, analysis of HUL’s ad spend and volume growth indicates that even during this period, ad spending has positively correlated with volume growth. 

Also Read: FMCG stocks: Steady monsoon, social welfare thrust likely to aid growth, says Anand Rathi

This trend has prompted FMCG companies to discuss increasing ad spending, as highlighted by the brokerage's analysis of commentary from FMCG companies over the last 8 quarters.

The brokerage's channel checks indicate that the cost of an impression on digital platforms (OTT) is 10 to 30 times higher than that on a comparable TV channel. Despite potential differences in impression quality, television offers a significantly broader reach for a given budget compared to OTTs.

Furthermore, despite 25–30% of rural viewers having smartphones, the effectiveness of targeted campaigns is limited. Therefore, despite high internet penetration in rural India, television remains the primary medium for reaching rural consumers.

Also Read: Brokerages see likely gain in FMCG stock with BJP’s return to power

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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First Published:13 Jun 2024, 12:34 PM IST
HomeMarketsStock MarketsICICI Securities upgrades ZEE, Sun TV to ’Buy’ on expectations FMCG firms will spend more on advertising

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