Why have media stock prices seen a jump in the last 3 months?

Most companies in the media business witnessed stock prices reaching all-time low in the last three years, but a look at the last three months shows a double-digit jump in the same

e4m by Tasmayee Laha Roy
Updated: Jun 25, 2020 9:27 AM
Markets

These three months of the country being in a lockdown has interestingly seen a rally in media stocks, leaving behind the last three years of all-time low performance.

This sector, comprising broadcasters, multiplex operators, and the print media has, however, been among the most impacted by the COVID-19 outbreak and the subsequent lockdown.

“In the recent run-up, media index has gained around 45% from March lows and many stocks have outperformed Nifty on account of valuations reaching multi-years low,” said Ashish Kapur, CEO, Invest Shoppe India.

According to analysts, stocks of companies like Network18, Sun TV Network, HT Media Ltd, Zee Entertainment Enterprises Ltd. have done particularly well in this lockdown period.

So why did stock prices of media companies see a spurt in the last three months?

According to Sunil Damania, Chief Investment Officer, MarketsMojo.com, “It is a risk-on environment at the moment where there is lot of liquidity in the market that is pushing up the prices including in mid-cap and small-cap and benefit of that is reflected on media companies as well. Whether these prices are sustainable or not is a big question.”

Talking of performers, Rajesh Agarwal, Research Head at AUM Capital, said: “The best performers during this period have been OTT players. In the listed space the likes of ZEE5, AltBalaji and Voot did brisk business, added a good number of subscribers, but none of them are individually listed and are part of their listed parents.”

To evaluate this lockdown performance, we took a closer look at the last three years compared to these last three months.  

ZEEL’s stock prices, for instance, saw a 64% drop in the last three years. The price of ZEEL stocks was between Rs 450 in January 2017 and Rs 288 in January 2020. In the last three months, however, the price has shot up by 48%. When the lockdown started on March 25, its stock prices stood at Rs 125.50 and now, as of June 24, it has touched Rs 174.10.

Meanwhile, Sun TV Network stocks registered a 50% drop in price in the last three years. However, in these three months the value has gone up 48%. Similarly, NDTV stocks that saw a price drop of 23% in the last 3 years saw a jump of 71% in the last three months.

TV18, which saw 8% growth in the last 3 years has witnessed an almost 200% jump in these three months. TV18 stocks that touched Rs 14.35 on March 26 was priced at Rs 36.45 on June 24. The growth in prices has been backed by the consolidation in the company.

A closer look shows broadcasters undoubtedly did better when compared to the print industry.

Print definitely has taken a bigger hit. Sharing further insights was Rohit Dokania, Vice President - Research at IDFC, “We have seen an overall drop of 70-80% in ad revenues for print and radio, whereas for television the drop in the same period would be anywhere between 40% and 50%, largely because they have a higher FMCG skew. It is not just drop in ad volumes that has led to the fall in revenues but also the drop in ad rates. This is the worst the media industry has seen and so have advertisers.”

Advertisers have also gone through phases of zero revenue and in times like these, advertisement is the first cost to be cut, and this impacted media companies adversely, Dokania added.

However, keeping with the trend of growing stock prices, print players have also seen good growth in stock prices. HT Media Ltd that saw stock prices fall by as much as 82% in the last 3 years, has recorded a 68% growth in the last 3 months.

Jagran Prakashan Ltd that saw a drop of close to 76% in prices in the last 3 years also saw a growth of 6% in the last three months. Hindustan Media Ventures Ltd, too, has joined the trend. The brand that saw an 81% drop in the last 3 years saw a 41% growth in stock prices in the last 3 months.

But should investors add media stocks to their portfolio?

Damania makes a special mention of companies that have overall good fundamentals and thus are viable options for investment. “Companies like HT Media Ltd have huge cash and cash equivalent and is thus a cash rich company, which makes it safe.” However, he suggests one must be cautious adding media stocks to their portfolio as advertisement revenues will go down further due to marketers cutting down on ad budgets. “A lot of advertising will also be directed towards social media, making the traditional media companies struggle to maintain bottom lines,” Dokania explained.

Pointing at some factors outside the COVID impact, Kapur said: “The sector might also be impacted by the anti-China sentiment resulting in Chinese brands pulling back ads. Chinese smartphone and electronic brands have been major contributors to India’s overall advertising spends in 2019. Amidst these concerns, the overall sector outlook remains bleak. Within the sector, we believe stocks of print media and multiplex operators can be avoided as their performance is likely to be hit the most. We are bullish on only selective stocks. We remain positive on Reliance-backed TV18 broadcast and other big industry leaders like Sun TV and Zee Entertainment due to their massive presence and attractive valuations.”

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