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Zee Ent : Digitization boosts subscriptions
Jan 23, 2013

Zee Entertainment has announced the results for the third quarter of FY2012-13. The company has reported 26.3% YoY growth in sales and 39.3% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Zee's topline grew by 26.3% YoY as compared to the same quarter last year. Both advertising and subscriptions contributed to this growth. For the 9 month period, the same was up by 27% YoY.
  • Advertising revenues jumped by 29% YoY on better economic scenario and prospects of better policy measures to tame inflation. Completion of phase 1 of digitization helped subscriptions register a growth of 26% YoY this quarter.
  • On the cost side, operating expenditure increased by 25.8% YoY during the quarter led by a substantial increase of 37% in other expenses. Resultantly, operating profits increased by 27.6% YoY and operating profit martgins recorded marginal rise of 30 basis points.
  • Other income rose by 27.2% YoY as compared to the same quarter last year.
  • Zee's net profits went higher by 39.3% YoY during the quarter and by 25.9% YoY for the year till date. Net profit margins expanded by 2% during the quarter. For the year, the same were stable at around 20%.

Financial performance: A snapshot
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net sales 7,436 9,388 26.3% 21,546 27,353 27.0%
Expenditure 5,389 6,777 25.8% 15,920 20,233 27.1%
Operating profit (EBDITA) 2,047 2,611 27.6% 5,626 7,120 26.6%
EBDITA margin (%) 27.5% 27.8%   26.1% 26.0%  
Other income 283 360 27.2% 809 923 14.0%
Interest 13 16 18.3% 34 57 66.5%
Depreciation & amortisation 74 90 21.3% 241 284 17.8%
Profit before tax 2,243 2,866 27.8% 6,160 7,702 25.0%
Exceptional items - -   - -  
Tax 867 933 7.6% 1,882 2,324 23.4%
Profit after tax before minority 1,376 1,933 40.5% 4,277 5,378 25.7%
Minority interest (17) (8)   (13) (22)  
Share of profit & loss of associate - -   - -  
Profit after tax 1,393 1,941 39.3% 4,290 5,400 25.9%
Net profit margin (%) 18.7% 20.7% 1.9% 19.9% 19.7%  
No. of shares (m)           953.96
Diluted earnings per share (Rs)*           7.34
P/E (x)           31.20
(*trailing twelve month earnings)

What has driven performance in 3QFY13?
  • Zee's topline grew by 26.3% YoY as compared to the same quarter last year. For the 9 month period, the same was up by 27% YoY. Kindly note that from 3QFY13, Zee has changed its accounting method of reporting financials of its joint venture company MediaPro from equity accounting to line-by-line consolidation. Hence, the numbers are not strictly comparable with 3QFY12.

    Revenue Break up
    (% of sales) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Advertising Revenue 3,955 5,094 28.8% 11,692 14,847 27.0%
    % sales 53.2% 54.3%   54.3% 54.3%  
    Subscription Revenue 3,262 4,098 25.6% 9,223 11,688 26.7%
    % sales 43.9% 43.6%   42.8% 42.7%  
    Other sales and services 220 197 -10.3% 631 818 29.6%
    % sales 3.0% 2.1%   2.9% 3.0%  

  • Advertising revenues jumped by 29% YoY on better economic scenario and prospects of better policy measures to tame inflation. Also, better market share helped Zee in getting better ad rates from advertisers. Completion of phase 1 of digitization helped subscriptions register a growth of 26% YoY this quarter. The domestic subscriptions jumped by 33% helped by both digitization drive and joint venture operations with MediaPro Enterprises.

  • On the cost side, operating expenditure increased by 25.8% YoY during the quarter led by a substantial increase of 37% in other expenses. Zee is continuing to invest in content and marketing for existing channels as well as towards newer channels. Operating profits increased by 27.6% YoY and operating profit margins recorded marginal rise of 30 basis points.

  • Other income rose by 27.2% YoY as compared to the same quarter last year.

  • Zee's net profits went higher by 39% YoY during the quarter and by 26% YoY for the year till date. Net profit margins expanded by 2% during the quarter. For the year, the same were stable at around 20%.

  • The company's flagship channel Zee TV recorded a channel share of 19%. Average weekly Gross Rating Points (GRPs) were 198. The number of Zee shows that featured in the top 100 stood at 18.

What to expect?
At the current price of Rs 229, the stock is trading at a multiple of 24 times our estimated FY15 earnings. Zee has been outperforming the overall television media industry for quite some time now. This is because of better market share resulting from increased investment in content and marketing. This helps Zee in procuring better ad rates from advertisers. On the subscription front, the media company stands to benefit hugely from the mandatory digitization drive which is evident from the growth in domestic subscriptions in December quarter. It is investing huge sums of money into sports business too which is still loss making and is expected to continue incurring losses for some more time. Although the company has been delivering on its promises and the future outlook is also good for the company, we maintain our Sell view on the stock purely on the basis of valuations.

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