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Q4FY21 Preview: Not out of the woods yet

Advertising recovery after the festive season has been weaker than our expectations. Despite a favorable base quarter (Q4FY20 saw double-digit decline), broadcasters are estimated to register ad growth in the range of -6% to +8%, with Zee continuing to outperform Sun TV on growth rate. Ad volumes have returned to normalized levels, while the channels that saw market share erosion are still struggling on yields. Zee and Sun TV have lost market share yoy for some key channels (see exhibits 3 & 4), and this has partially restricted recovery, in our view. Multiplexes started the quarter on a good note with blockbuster performance from the Tamil movie ‘Master’. Content releases and performance in South languages were encouraging. However, the lack of bigbudget Bollywood movie releases restricted the rebound in footfalls. Hollywood content performed well at the end of March. PVR is expected to outperform Inox on footfalls recovery, given its strong presence in South.

* Broadcasters: We expect the trend to continue, with Zee outperforming Sun TV on ad growth rate. We estimate 8% yoy ad growth for Zee on a base of -15% in Q4FY20. This slow recovery can be attributable to market share losses in some channels (Zee TV, ZeeMarathi, Kannada and Bangla). We believe market share losses would have hit yields harder in the Covid era. However, Zee Anmol (FTA channel) would contribute positively to the ad revenues as the same was a pay channel in the base with minimal viewership. New content launches on Zee TV have not been able to lift market share. In the near future, Zee will be launching fresh content across Tamil, Kannada, Malayalam and Marathi to improve share. Sun TV, on the other hand, has been not been tracking well on ad recovery due to higher contribution from the retail segment and yoy market share losses across the southern channels.

* Subscription revenues for both the companies should continue to be in the positive territory, with Sun TV taking the lead and posting a 7% yoy increase, while Zee should log a 5% rise, after adjusting for revenues from the music business. Both Zee and Sun have been losing viewership share in key markets yoy and have started to invest in fresh content launches to arrest it, leading to higher content spends. This is expected to impact operating performance. Zee’s numbers on reported basis are not comparable yoy due to write-offs in Q4FY20, while for Sun TV, EBITDA should decline on cost inflation and ad revenue dip.

* Multiplexes: With most of the state governments permitting 100% occupancy, the release of a few films and the announcement of release dates of numerous Bollywood titles, the quarter was definitely on the recovery path. Beginning with the release of ‘Master’, regional content dominated box office collections and accounted for ~86% of it. With a higher chunk of screens in the South (35% of the total portfolio), we expect PVR to post better recovery and for EBITDA loss to be restricted. On the other hand, Inox’s tight control over cost will continue and lower exposure in South would lead to divergent revenue trends in comparison with PVR.

* Fresh content and consumer behavior are the key monitorables for cinemas; hence, the recent imposition of lockdown in Maharashtra, rising Covid-19 cases and subsequent deferral in release dates of multiple movies are clear negatives, especially considering the recent rise seen in occupancy levels. These will hamper Q1FY22E show as well as the pace of recovery in FY22E.