By Karan Taurani /Elara Caps

Win win for BCCI; premiums in line with expectations

IPL media rights have fetched INR 484bn, which is largely in line with our estimate of INR 500bn; this is driven by 30%/70% premium on TV/digital base price, which too was in line. In terms of split, 49% of media rights is from digital (inclusive of cluster), however, this segment accounts for mere 22% of revenue; we believe the hefty premium paid by Viacom 18 is more from a strategic standpoint, to benefit 1) Jio subs retention (possibility of a bundling plan) and 2) improve valuation for the OTT platforms. Digital media revenues are estimated to grow at a faster pace of 30% (SVOD and AVOD), whereas TV revenue is estimated to grow in a narrow band of 6-8% over the next five years. Cost of rights on a per match basis for digital has come on par with TV, and the cost of rights has now breached global leagues like EPL by a big margin, which shows the compelling nature of IPL content.

Unbundling of rights: digital to have the upper hand

In terms of advertising verticals, key segments like E-comm, FMCG, Auto and banking dominate the overall ad pie across TV and digital (~60% of the ad pie); however, in case of IPL rights being sold separately, we expect stiff competition within the TV and digital platforms for advertising budgets. We expect some verticals like fintech, commerce, Ed-tech and EV to see a rapid shift towards digital, whereas FMCG and auto will continue to rely heavily on TV for their mass campaigns. In terms of break even, we estimate TV medium to attain profitability in the second year itself, as premiums were limited on the same over the base price; for the digital segment, the break-even is estimated to be in the fourth year, due to a hefty content cost, propelled by sharp premiums on package B and C of the media rights. However, digital has a potential to generate a gross margin of 24% in the fifth year helped by strong growth prospects, as compared to TV, whose gross margins will peak at 13%.

Teams’ revenue to multiply with higher profitability

IPL teams’ revenue is estimated to move up 2.2x (between INR 6.5bn-8bn), on an average helped by 1) surge in media rights revenue and 2) increased number of matches (40% increase vs previous cycle); in terms of profitability too, EBIT margins are estimated to move up towards 40%-48%, as player costs remain capped to a certain extent. We had already factored in above revenue and profit numbers for the listed entities (UNSP and SUNTV) into our estimates; maintain our view that SUNTV is expected to see the bigger delta as its team’s market cap contribution is 40%, whereas UNSP is towards 14%. We have a BUY rating on both stocks.