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Q1FY22 Preview: Broadcasting ahead of box office

After seeing a rebound in Q4FY21, advertising revenues of broadcasters in Q1FY22 are expected to be adversely affected by the second Covid-19 wave. However, the rate of decline would be significantly lower than last year, as fresh content was available throughout the quarter, with only a few disruptions due to the restrictions on shooting. In our view, the low base of the prior-year comparable quarter restricts a yoy analysis and may not provide an accurate picture. Hence, our yoy analysis is over Q1FY20. For broadcasters, we expect to see ad revenues decline in the range of 22-29% yoy. We are projecting Zee to outpace Sun TV in terms of ad growth. For multiplexes, the absence of big-ticket movie releases and the closure of cinemas midway through Q1 should result in a weak quarter, with the focus primarily on controlling the cash burn.

Broadcasters: We expect Zee to register a 22% yoy decline in ad revenues, outstripping Sun TV. The higher contribution of local retail advertisers should lead to Sun TV posting a 29% yoy decline in ad revenues. In subscription revenues, it could be the opposite, with Sun TV surpassing Zee with 8% growth yoy, adjusting for revenues from the music business for Zee. Zee’s subscription revenues will be supported mainly by Zee5 which saw introduction of aggressive pricing plans, higher traction during the digital release of ‘Radhe’ and the renewal of a pending telco contract in Q1.

Operating performance of both the companies will be impacted by higher expenses associated with isolated shooting of shows due to Covid-19. For Zee, we are penciling EBITDA margins of 18.5%, significantly lower than 32.9% in Q1FY20, while for Sun TV, margins are likely to contract 289bps yoy.

Investors should look for announcements regarding dividend payout or other ways to reward shareholders for Sun TV, while cash generation and sustained improvement in the balance sheet continue to be crucial for Zee, along with payment trends from Dish TV and Siti Networks.

Multiplexes: Unlike last year, there was a staggered closure of cinemas across states this time. Fresh content releases in South India in the first half of April contributed to revenues. That said, efforts on cash management will be the primary focus. While negotiations for rental waivers are underway, we believe that procuring a 100% waiver on rent might be a bleak possibility this time, which in turn should lead to higher EBITDA losses for PVR and Inox. With both the companies raising funds recently, they will be in a comfortable liquidity position, in our view.

Global cues have been encouraging, with robust box-office performance of films such as F9, healthy weekend collections and permission for full occupancy in cinemas in a few geographies. These factors give credence to our belief that once all the cinemas resume operations, fresh content releases should attract footfalls. In the meantime, the rate of vaccination continues to be the primary monitorable.

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