India Media Sector
INITIATION
Broadcast sector: strong top line, but
competition and rising costs a challenge
We initiate coverage of the Indian broadcast sector with a MARKET
WEIGHT stance, due to the absence of near-term earnings catalysts and
valuation support. While current share prices appear tempting on relative
measures, an uncertain macro environment, slowing top-line growth for
ad spenders and a deteriorating competitive environment could temper
valuations, in our view. Longer term, we have a positive bias on sector
fortunes, driven by hopes of a resumption of macro strength and pay
opportunity, helping digest new competition.
■  The commoditisation of the broadcast sector. In our view, the impending
launch of over 100 new channels will fragment viewership, render TRPs
volatile and eventually pressure ad rates and push up costs. Competition
from other media (print, radio, out of home, Internet) also limits the scope for
any drastic increase in ad spend allocation for TV media.
■  Expect cyclical deceleration in ad revenues. While we peg near-term ad
revenue growth to consensus (18% YoY), as we expect historic cash flow
strength to support growth, we see a risk of cyclical deceleration in mediumterm
growth, as suggested by Credit Suisse’s ad trend forecaster, which
highlights receding top-line growth for ad spenders.
■  Pay opportunity could reduce revenue cyclicality. Longer-term, the pay-
TV opportunity will help reduce revenue cyclicality and balance margin
pressures, in our view. It is ironic, though, that the fortunes of direct-to-home
(DTH), the key enabler of this change, could be hurt by the entry of telecom
operators that have superior cost, acquisition and funding models.
■  Avoid commodity assets; buy differentiation: We advise investors to
avoid broadcast assets that lack earnings support (NDTV, TV18). We play
differentiation through UTV, earnings momentum through Zee News and
business model resilience through Sun TV. We rate Dish TV a Neutral
(negative bias) and Zee Ent a NEUTRAL (positive bias).

Table of contents
Focus charts 2
Strong top-line but competition and rising costs a challenge 3
Sector valuation 4
The commoditisation of the broadcast sector 6
Expect deceleration in ad revenues 11
Pay opportunity could reduce revenue cyclicality 14
Avoid commodity assets 20
Zee Entertainment (ZEE.BO / Z IN) 25
TV 18 (TVET.BO / TLEI IN) 42
DISH TV (DSTV.BO) 60
Sun TV (SUTV.BO) 74
NDTV (NDTV.BO) 92
Zee News (ZEEN.BO) 104
UTV Software (UTVS.BO) 113
A high-growth play 115
Valuations 122
Financials 123