The sharp rupee depreciation means that FMCG companies may see a reversal of the gross margin gains that they have seen in the last few quarters and may look to cut ad spends in the coming quarters, thereby impacting ad growth for TV broadcasters.
The 10+2 ad cap limit from Telecom Regulatory Authority of India (Trai) is likely to have a much more adverse impact on smaller broadcasters than the larger ones who have recently launched new channels in order to maintain their total ad inventory available to advertisers.
Despite Trai?s efforts, consumer addressability still remains an issue even in Delhi and Mumbai and, hence, average revenue per user (ARPU) increases will take time.
With healthy monetisation for current ARPU levels in Phase 1 and Phase 2, subscription revenue growth could moderate in the near term.
Phase 3 should provide a big kicker. We trim our ad growth forecasts for FY14 from 15% to 10% for Zee, which leads to approximately 4% cut to our numbers. Our target price reduces to R280 (from R290). However, we, continue to believe that the broadcasters are best placed to benefit from digitisation and maintain outperform on Zee.
Our thesis of ad revenues holding up in a tough environment has been based on an expected gross margin expansion for FMCG companies given the global decline in commodity prices.
However, the recent R depreciation takes away a large part of that benefit. Our consumer analyst believes that FMCG companies have two levers to maintain margins: i) pricing; and ii) ad spends, and they will exert both.
Credit Suisse
