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

Cost-cutting measures pay Advertising revenues of media companies, such as Zee Entertainment Enterprises, DB Corp and HT Media, have been hit 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 has been hit in the quarter, compared to the year-on-year performance in the first half of the fiscal. However, despite slowdown in revenues, companies have managed better profitability 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’ recommendations on DB Corp and Zee post-announcement of results.

Commenting on DB Corp, Ankit Kedia, analyst at Centrum Broking, said, “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.”

‘DeMon transient’ Management of Zee and DB Corp said they have seen bounce-back in the 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, MD & CEO pointed out that the advertiser’s 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 December levels,” he said.

Sudhir Agarwal, MD, DB Corp, also expressed a similar view: “We expect 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,” he said.

One-year forward valuation (price to FY18 estimated earnings multiple) 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 forward.

Despite high valuation, an analyst from Sharekhan sees Zee as a structural India consumption theme and likes the company’s investment across the media spectrum, such as movies, music, events, digital and international markets to maintain its high growth trajectory.

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