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Media & Entertainment: Are investors entertained? - Outside View by PersonalFN

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Media & Entertainment: Are investors entertained?
Feb 9, 2012

Agneepath has been the latest Bollywood sensation which garnered the record opening day collection of Rs 25 crore by outstripping the collections of some of the recent blockbusters. Release of the film was nicely timed with a long weekend which ensured the high occupancy in theatres. In today's world where the demands of the audience are changing, only a strong star cast is no longer a mantra of a successful film. Although being in a glamorous business of media and entertainment (M&E) is thriving,dealing with challenges too aren't easy. The M&E industry has evolved from broadcasting to podcasting but has this changed anything for investors? Does the sector look attractive for investment?Let's find out if it does......

Changing Face of Media and Entertainment industry in India

M&E industry assumes altogether a differentplace in a country such as India. India isthe world's second most populous nation and has been heading towards hitting a sweet spot of demographics. India has the youngest population among some of the major economies of the globe. Burgeoning middle class, rising discretionary income and ever changing consumer preferences are changing the landscape of India's M&E industry which was,until recently limited largely to print and television.Digitalisation of media has put many businesses in the fast lane.Social Networking has become popular not only with youngsters but also across the age groups. Today people use the phrase "googled" as a synonym for using a search engine. You need not keep the cut outs of important news with you, as everything is just "one click" away these days. There are multiple news channels dedicated only for broadcasting news. There are hundreds of General Entertainment Channels (GECs) which compete among themselves. The role of "media" has become much more extensive than just the news reporting; and entertainment industry is not entangling the audienceonly with a "love triangle".

Some key segmentsinthe Media &Entertainment pack

  1. Television

  2. Print Media (which includes newspapers and magazines)

  3. Film entertainment (which includes production and distribution of films)

  4. Radio

  5. Music

  6. Emerging sectors such as Digital Media
As per FICCI-KPMG research report on Indian M&E industry, the industry was valued at Rs652 billion in 2010,which is now expected to grow to the size of Rs1,275 billion by 2015. It is noteworthy that in terms of value, Television and Print are the top two segments which accounted for about 75% of the total size of the industry in 2010.

Growth Trends
(Source:Federation of Indian Chambers of Commerce and Industry, KPMG, PersonalFN Research)

The chart above reaveals how different segments of the M&E industry have grown at varying rates between 2007-2010. Gaming, digital advertisements and animation have exhibited their tremendous growth potential.

Growth Pattern of Various Segments of M&E Industry
(Source:Federation of Indian Chambers of Commerce and Industry, KPMG, PersonalFN Research)

Delving a little deeper, the chart above depicts how growth pattern too has emerged within each segment of M&E across time frames. Barring films, the year 2010 has enabled the other segments in the M&E pack to garner appealing growth.

Globally, the new media has been growing at a ferocious pace, while on the other hand conventional media has become stagnant. However, India has been bucking the global trend. The print segment still dominates the industry even today; though it is growing at albeit a slower pace. Whereas emerging segments such as digital advertisements, gaming have witnessed higher growth year on year.

Scope for growth...

Growth prospects look promising in India as it is still underpenetraed in terms of media reach and access to various modes of entertainment.For example, India has far lesser cinema screens than countries such as U.S. and China despite producing far greater movies. As per the estimates of BoxOffice India, the number of multiplex theatres is expected to nearly double from 1,075 in 2010 to 1,925 by 2015.

Similarly, interenet users (as a percentage of contry's populaton) in India are far lesser when compared to developed nations and other BRIC nations as well.

Country % of population
United Kingdom 84.8
Japan 79.4
United States 79.3
Brazil 40.7
Russia 43.4
China 34.4
India 7.8
Note: Data as on calendar year 2010
(Source: World Bank,PersonalFN Research)
M&E industry from investment perspective

In the last decade many new players have entered the industry sensing an exponential growth in various segments.Many business houses went public by having Initial Public Offerings (IPOs). In fact some IPOs, which were launched during the bull phase, received overwhelming response from the investors. But a noteworthy point is that investors' subscribed to these issues to make listing gains. Thus say if the stock provided even a 10% return (in absolute terms) investors preferred to book profits. However, the then market darlings are down in the dumps now and the rally has fizzled out in M&E stocks. The underperformance comes from across the board and it is not just limited to a particular segment within the industry.

Gloomy Overcast
Note:The prices are adjusted for stock split
Data as on January 30, 2012
(Source: NSE, PersonalFN Research)

Take for instance TV18 Broadcast. Since the time the IPO was floated in January 2007 (which got oversubscribed by 48.7 times), the stock has underformed after sub-mortgage crisis occurred in the U.S. in early 2008.Recently, while Reliance Industries Ltd. (RIL) announced its plans to invest about Rs1,500 crore in TV 18 Group, it has failed to lift the investors' sentiment.

Chronic Gyration
Note:The prices are adjusted for stock split
Data as on January 30, 2012
(Source: NSE, PersonalFN Research)

Similarly, let's take the case a Deccan Chronical. While one in every five daily newspapers in the world is published in Indiaand literacy rate in India has been on stead rise (as estimated by World Association of Newspapers), along with improved readership; these positivemacro factors have failed to provide impetus to even this leading stock in the print segment.

Ringing a BearTune
Data as on January 30, 2012
(Source:NSE, PersonalFN Research)

OnMobile Globalwhich offers solutions in all mobile channels such as Voice, SMS, WAP, USSD, Video, On-Device Portal & Web etc. has also failed to make its mark.

Thus if we broadly assess the CNX Media Index (which was launched in December 2005) vis--vis the S&P CNX Nifty, it has unperformed the broader index - S&P CNX Nifty over the last six years. After a sharp impulse during the exuberant years of 2005, 2006, and 2007; the CNX Media index has underperformed since Lehman Brothers bankruptcy, and has failed to even outperform since thenduring the upswing of the Indian equity markets.

CNX Media Vs. S&P CNX Nifty
Base: Rs 100
(Source: NSE, PersonalFN Research)

Thus say if one were to invest a sum of Rs 100 each in the CNX Media index and S&P CNX Nifty respectively on January 30, 2006, the same would have yielded a mere Rs114 in the CNX Media, whileRs 171 in S&P CNX Niftyon January 30, 2012 - thereby providing a CAGR of 2.3% and 9.4% respectively.

Investment through a Mutual Fund Route

Mutual Fund houses have avoided going Gung-ho on the M&E industry. There are just two dedicated funds, at present, focusing on the growth opportunities in M&Esector. Speaking about their performance, there are mix results so far.

Scheme Name 6 Months 1 Year 3 Years 5 Years Std. Dev Sharpe Ratio
Reliance Media & Entertainment (G) -2.6 0.6 24.5 1.6 8.37 0.16
Sundaram Enter Oppor (G) -21.5 -23.0 7.0 - 8.75 0.01
S&P CNX Nifty -7.2 -7.7 21.0 4.3 7.61 0.15
Note: Since the data of CNX Media was not available in ACE MF, the respective funds have been compared to S&P CNX Nifty
NAV data is as on January 30, 2012. Standard Deviation and Sharpe ratio is calculated over a 3-Yr period.
Risk-free rate is assumed to be 6.37%. (Source:ACE MF,PersonalFNResearch)

The table above reveals that only Reliance Media&Entertainment Fund has managed to outperformed the broader index - S&P CNX Nifty over 3 years time frame by generating luring returns at 24.5 % CAGR as against the CAGR returns of 21.0% clocked by S&P CNX Nifty.However over 5 years time frame the fund has failed to outpace the performance of S&P CNX Nifty.

On the other hand Sundaram Entertainment Opportunities Fund has miserably underperformed the broader index - S&P CNX Nifty, across time frames.

Moreover, both the funds have been more volatile than the S&P CNX Nifty as indicated by their relatively higher standard deviation.


We believe although the growth potential of Indian M&E industry holds the great promise; it looks rather unattractive from the investment perspective. In India, piracy, political influence, paralysed policy measures and corruption are the biggest challenges faced by the industry. Moreover, factors such as big budgeted campaigns, intense competition and ever changing technology are putting the strain on the financials of the companies. Many companies in the sector have become debt laden owing to their inability in controlling costs.

Opportunities in the sector don't automatically translate into rewarding opportunities for investors. Investment in any particular sector is always a risk unless the companies are selected for their merits. The picture might look rose-cheeked from the macro perspective but investors' money might test the nadir if one falls for wrong investment ideas following these apparent positives. The investors may not find solace even with the sector funds as they are restricted to just one sector or a theme. Investors will be better off avoiding investment in Media and Entertainment sector if it is based only on the macro positives.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Media & Entertainment: Are investors entertained?"


Feb 22, 2012

It has become fashion in your articles to mention about corruption and political influence for woes of all the companies. The paper Deccan chronicle you had mentioned is popular only for sleaze advertisements. The pity is that they have monthly advertisements that means if you miss a day, one can see the advertisements next day. The woes of these companies are primarily on account of ill doings of these companies.

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