India's Hot Sector: Media
From the button-down shores of America, India's version of capitalism seems less like a business model and more like a monsoon. Harnessing the erratic winds for the good of your portfolio hasn't proven easy. After soaring 620% between April 2003 and January of this year, the Bombay Stock Exchange Sensitive Index (kind of like India's Dow) has since dropped about 18%.
You can ride the whole monsoon by buying an exchange-traded fund that tracks an index of India stocks, or you can go for a big score and try to identify a few individual companies with outstanding potential. If you want to take the latter approach, listen to William Nobrega, co-author of Riding the Indian Tiger (John Wiley & Sons, $30).
Nobrega is a consultant who specializes in helping institutional investors and companies do business in emerging markets. In India specifically, he sees opportunities in mega trends, what he terms "next wave verticals." The strongest of these is the media sector.
Behind Nobrega's bullishness on Indian media companies is the growing middle class and increasing literacy rates. As retail chains develop and the middle class grows and becomes more mobile, the media industry will grow to deliver news and advertising via radio, TV and newspapers, he says.
He points out that Indian retailers' advertising budgets are only one third of what Western retailers budget, on a percentage-of-sales basis. Says Nobrega: "So the growth of media and entertainment companies will be phenomenal. The demand is far outstripping supply. In the near term, three to five years, the returns in that industry will far outweigh other industries."
Among media companies, Nobrega likes Entertainment Network (India) Ltd., commonly called ENIL. This profitable company dominates FM radio in India, with 31 stations that cover all the major markets and then some. In the quarter that ended January 31, revenues increased 46% from the year-earlier period.
The stock is listed on India's Bombay Stock Exchange under the symbol 532700.BO and on India's National Stock Exchange under the symbol ENIL. It closed April 29 at 410.20 rupees a share, or about $10.17.
Nobrega says that ENIL's share price, like much of the India market, had been highly inflated. ENIL's 52-week-high was about 700 rupees, or $17.32 a share. At its current price, the stock has a price to earnings ratio of 100, based on trailing twelve months earnings.
India doesn't have a large analyst community, so earnings estimates are scant and what estimates exist are not terribly reliable. At any rate, buying ENIL isn't a bet on short-term profits, but on Nobrega's premise about India's media industry and ENIL's envious position in it.
Nobrega also suggests that investors keep an eye out for a private media company planning to go public this year. DB Corp. publishes 31 newspapers and operates 13 radio stations, with licenses to set up more stations in major cities Mumbai, Bangalore and New Delhi.
When will India's market emerge from its current slump? Although India isn't as tied to the U.S. economy as much as other Asian nations are, the U.S. credit crisis has contributed to the chill in Indian stocks, Nobrega says. However, he expects the Indian market to be "back to high growth mode again" by the fourth quarter of this year.