Media is the fourth immediate and direct victim of demonetisation, besides fast-moving consumer goods, consumer durables and automobiles in the consumer sector. For obvious reasons. Advertising is the first thing corporates cut down on when witnessing/anticipating slowdown in business. That’s what happened in the December 2016 quarter.

Advertising revenues of media companies such as Zee Entertainment Enterprises, D B Corp and HT Media have been hit hard in the quarter (-6 to 3.4 per cent) though subscription/ circulation revenues have grown at a decent rate (2-14 per cent). Consequently, revenue growth in the quarter has been hit compared to the year-on-year performance in the first-half of the fiscal. However, despite a slowdown in revenues, companies have managed profitability better by controlling overheads.

Stocks of media companies have already factored in the impact of demonetisation with declines seen in the range of 3-13 per cent over the last three months. Analysts have maintained their ‘buy’ recommendation on D B Corp and Zee post announcement of results.

“We believe any improvement in the economy would help the company post double-digit ad growth. While we have modelled in high single digit circulation revenues for the next two years, it continues to be higher than competition,” said Ankit Kedia, analyst at Centrum Broking in case of D B Corp.

Managements of the above companies said they have seen a bounce-back in business, though things will normalise in the next few months. Dr Subhash Chandra, Chairman of Zee Entertainment Enterprises, believes that the adverse impact of demonetisaton is transient. Punit Goenka, managing director and chief executive officer of the company, pointed out that advertisers’ willingness to invest in their brands remains intact. “The timing of spends has been re-calibrated to an extent to suit the change in dynamics due to demonetisation. As the economic situation is normalising, adspends have already started moving up from their December levels, he said.

Sudhir Agarwal, Managing Director at D B Corp, also expressed a similar view: “We expect an immediate-to-medium term impact of the currency purge undertaken by the government, on consumption to normalise over the next few months, a process which has already started improving slightly,” he said.

The one-year forward valuation looks reasonable in the range of 10-15 times for HT Media and DB Corp, while the same continues to remain high for Zee at 29 times. Hence, stocks are expected to do well going ahead.

Despite high valuation, analysts from Sharkhan see Zee as a structural India consumption theme and like the company’s investment across the media spectrum, including movies, music, events, digital and international markets, to maintain its high growth trajectory.

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