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  • Jan 15, 2011 - Zee Entertainment: Advertising revenues boost performance

Zee Entertainment: Advertising revenues boost performance
Jan 15, 2011

Zee Entertainment has announced 3QFY11 results. The company has reported 55% YoY and 11% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grew 55.4% YoY during the quarter. For the 9 month period, revenues grew by 43% YoY.
  • Operating margins declined by 2.4% YoY, from 29.6% last year to 27.2% in the current quarter. For the 9 month period, the margins declined by 0.4% YoY.
  • Other income declined 28.1% YoY during the quarter. For the 9 month period, it declined by 36.4% YoY.
  • Net income increased 10.6% YoY in the current quarter on the back of strong top line performance, however, overall margins declined to 18.3% during the quarter from 25.7% in the same period last year. For the 9 month period, there was a marginal decline of 0.4% YoY.


Financial performance snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Sales 5,309 8,249 55.4% 15,473 22,134 43.0%
Expenditure 3,737 6,008 60.8% 11,223 16,138 43.8%
Operating profit (EBDITA) 1,573 2,241 42.5% 4,250 5,997 41.1%
Operating profit margin (%) 29.6% 27.2%   27.5% 27.1%  
Other income 323 232.3 -28.1% 939.5 597.9 -36.4%
Interest 65.4 23.7 -63.8% 240 79.1 -67.0%
Depreciation 76.4 77.8 1.8% 228.3 195.9 -14.2%
Profit before tax 1,754 2,372 35.3% 4,722 6,320 33.8%
Tax 289.5 817.6 182.4% 1234.4 2328.8 88.7%
Minority Interest 100.1 45.4 -54.6% 237.6 83.2 -65.0%
Profit after tax/(loss) 1,364 1,509 10.6% 3,250 3,908 20.3%
Net profit margin (%) 25.7% 18.3%   21.0% 17.7%  
No. of shares (m)         978  
Basic & diluted earnings per share (Rs)*         5.3  
P/E ratio (x) *         22.3  
* On a trailing 12-months basis

What has driven performance in 3QFY11?
  • Zee Entertainment witnessed a 55.4% YoY growth during the quarter led by strong growth in advertising segment. Advertising revenue increased 62.4% YoY due higher channel shares across network, a buoyant macro environment and a continued preference of advertisers towards television. Subscription segment registered a growth of 14.3% YoY led by increase in subscription revenues from domestic cable operators during the quarter. 'Other sales and services' segment rose from 3% to 13% (YoY) as a percentage of sales this quarter due to onetime payment of Rs. 700 m for premature termination of sporting events rights.
    Revenue Break up
      3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Advertising Revenue 2,707 4,398 62.4% 7,163 12,288 71.5%
    % of sales 51.0% 53.3%   46.3% 55.5%  
    Subscription Revenue 2,467 2,818 14.3% 7,311 8,169 11.7%
    % of sales 46.5% 34.2%   47.3% 36.9%  
    Other Sales & Services 135 1,033 663.8% 999 1,677 67.8%
    % of sales 2.5% 12.5%   6.5% 7.6%  

  • Operating margins declined by 2.4% YoY, from 29.6% last year to 27.2% in the current quarter. The margins were impacted by increased programming and staff costs. The programming expenses increased 80% YoY, rising from 43% to 50.3% YoY (as a percentage of sales). However, this was mitigated to some extent by the savings in selling and administrative expenses which declined from 20% to 14% YoY (as a percentage of sales).

  • Net income increased 10.6% YoY in the current quarter on the back of strong top line performance, however, overall margins declined to 18.3% during the quarter from 25.7% in the same period last year. For the 9 month period, there was a marginal decline of 0.4% YoY.

  • The companyís flagship channel Zee TV recorded average channel share of 19% (vs. 22% last quarter) and average weekly Gross Rating Points (GRPs) of 200. The channel delivered an average 18 of the top 100 weekly shows in the quarter.

  • Please note that the current quarter results include financials of merged regional general entertainment channel business, ETC and 9x undertakings. Hence, the performance canít be compared with the prior periods on an apple to apple basis.

What to expect?
The company has shown a strong performance this quarter despite intensified competition. It plans to move towards a simplified corporate structure. In a recent meeting, the companyís Board approved the proposal to merge ZES holdings and Zee Multimedia Worldwide Limited. However, the proposal is subject to regulatory approvals in India and the respective jurisdictions for which the expected date is February 1, 2011.

At the current price of Rs 118, the stock is trading at 11.3 times our estimated FY13 earnings(Research Pro subscribers, please click here). We expect that the company will keep its growth story in the coming quarters since the core business driven by advertisement revenues remains strong. The stock has been declining for quite some time now. However, we would like to have a fresh look at our numbers post the management con call scheduled for Monday. We will update subscribers shortly.

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