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Zee: Subscription fees drives 3Q - Views on News from Equitymaster
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  • Jan 16, 2002

    Zee: Subscription fees drives 3Q

    Zee Telefilms has reported a 10% rise in consolidated third quarter profits to Rs 521 m. The company’s total income too rose by 11%. On a standalone basis, Zee has reported a 26% drop in earnings and 17% decline in revenues. ‘Zee TV’ contributed 29% to the group’s total revenues in 3QFY02, down from 39% in the comparable previous period.

    Zee Telefilms (Consolidated)
    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Sales 2,539 2,791 9.9% 6,788 7,604 12.0%
    Other Income 116 167 43.5% 380 562 47.9%
    Expenditure 1,902 1,843 -3.1% 4,847 5,294 9.2%
    Operating Profit (EBDIT) 636 948 48.9% 1,941 2,310 19.0%
    Operating Profit Margin (%) 25.1% 34.0%   28.6% 30.4%  
    Interest 112 232 107.1% 358 644 80.0%
    Depreciation 38 61 60.7% 103 142 38.0%
    Profit before Tax 603 822 36.4% 1,860 2,086 12.2%
    Tax 129 301 133.4% 424 669 57.6%
    Profit after Tax/(Loss) 474 521 9.9% 1,436 1,418 -1.2%
    Net profit margin (%) 18.7% 18.7%   21.1% 18.6%  
    No. of Shares (m) 412.5 412.5   412.5 412.5  
    Diluted Earnings per share* 4.6 5.1   4.6 4.6  
    P/E (at current price)   24.7     27.3  

    The company's advertising revenues remained under pressure during the first nine months of FY02 declining by 8% YoY. A slowing economy took toll on its ad revenues and consequently its contribution to total revenues also declined to 59% from 71% in first nine months of FY01. Going forward the company expects a flat growth in ad revenues. The fall in total revenues to an extent was trimmed by a healthy growth in subscription fees, which rose by 54% in the first nine months. Two of the company's leading channels Zee TV and Zee News had turned pay during June 2001. This has resulted in an increase in domestic pay revenues of the company to Rs 264 m during the quarter, a 163% rise over the corresponding period last year.

    Among the new initiative, Zee launched many new programmes on prime time on its flagship channel Zee TV during the third quarter. Some of the new launches include 'Mahabharat', 'Jai Santoshi Maa', 'Sarhadein', 'Aan' and 'Aaj bhi Ateet'. The company entered into a joint venture with Turner International to manage marketing & distribution for a bouquet of channels of the two companies. The JV will also market third party channels in India and South Asia.

    Zee Telefilms (Standalone)
    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Sales 1,031 853 -17.3% 2,649 2,888 9.0%
    Other Income 102 165 62.4% 345 554 60.7%
    Expenditure 666 470 -29.5% 1,626 1,811 11.4%
    Operating Profit (EBDIT) 365 384 5.1% 1,022 1,077 5.4%
    Operating Profit Margin (%) 35.4% 45.0%   38.6% 37.3%  
    Interest 29 161 459.2% 129 447 246.2%
    Depreciation 12 19 61.2% 29 50 69.9%
    Profit before Tax 427 370 -13.3% 1,209 1,135 -6.1%
    Tax 105 131 24.3% 300 301 0.3%
    Profit after Tax/(Loss) 322 239 -25.6% 909 834 -8.3%
    Net profit margin (%) 31.2% 28.0%   34.3% 28.9%  
    No. of Shares (m) 412.5 412.5   412.5 412.5  
    Diluted Earnings per share* 3.1 2.3   2.9 2.7  
    P/E (at current price)   54     46  

    During the quarter, the overall programming cost of the network reduced substantially. For Zee, on a standalone basis, programming costs declined by over 40% to Rs 285 m. A better mix of cost effective programmes fueled Zee Network's operating profits by 49% during the third quarter and by 19% during the first nine months of FY02. The company has also undertaken corporate restructuring and aims to reduce the number of subsidiaries. However, higher interest cost and depreciation charge curtailed the earnings growth to 10%.

    At the current market price of Rs 125 Zee is trading at a P/E of 27x 9mFY02 annualised earnings. The company's earnings have shown a good growth in the current quarter backed by spectacular rise in subscription fees. However, lower ad revenues and higher interest cost (on a consolidated basis) is likely to subdue its profit growth. Also, according to the latest TRP data, only 3 of its programmes feature in the top 50 list indicating that the company has yet to gain market share.



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