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Zee Ent: Taxes, lower other income mar bottomline
Feb 3, 2016

Zee Entertainment has announced its results for the third quarter of the financial year 2015-16 (3QFY16). The company has reported 17% YoY growth in sales and a 11% YoY fall in profit after tax. Here is our detailed analysis of the results.

Performance summary
  • Zee's sales grew by 17% YoY in 3QFY16.
  • The company managed to curtail its overall operating costs, causing a rise in EBITDA margins from 25.9% in 3QFY15 to 27% in the quarter gone by. This caused operating profit to grow by 21.8% YoY, higher than the revenue growth.
  • Profit after tax fell by 11% YoY.

Financial performance snapshot

(Rs m) 3QFY15 3QFY16 Change 9mFY15 9mFY16 Change
Net sales 13,637 15,951 17.0% 35,366 43,198 22.1%
Expenditure 10,104 11,649 15.3% 25,537 32,239 26.2%
Operating profit (EBDITA) 3,533 4,302 21.8% 9,830 10,960 11.5%
EBDITA margin (%) 25.9% 27.0% 1.1% 27.8% 25.4% -2.4%
Other income 802 290 -63.9% 1,713 1,559 -9.0%
Interest 28 45 57.8% 73 81 11.0%
Depreciation & amortisation 170 201 18.6% 499 567 13.6%
Profit before tax 4,137 4,346 5.0% 10,971 11,871 8.2%
Exceptional items - -   - 331  
Tax 1,072 1,602 49.4% 3,536 3,910 10.6%
Profit after tax before minority interest 3,065 2,744 -10.5% 7,436 7,630 2.6%
Minority interest (21) (6)   (32) (32)  
Share of profit & loss of associate - -   - -  
Profit after tax 3,086 2,750 -10.9% 7,467 7,662 2.6%
Net profit margin (%) 22.6% 17.2%   21.1% 17.7%  
No. of shares (m)         960.5  
Basic reported earnings per share (Rs)   10.4  
P/E (x)*         39.3  

*Based on trailing 12-months earnings


What has driven performance in 3QFY16?
  • The growth in sales was driven by a 26.8% YoY growth in revenues from advertising (details below); while subscription revenues grew by 17% YoY.
  • Operating costs provided a fillip this quarter as they grew just 15.3% YoY, thus taking margins higher. However, a significant drop in other income along with large spikes in interest charges and taxes took a toll on bottomline performance.
  • During the quarter, Zee TV was ranked third amongst all Hindi General Entertainment Channels (GEC).
  • ZEE's International operations constitute a significant part of the company's revenues. In Americas, Zee TV continued to garner the highest viewership share among South Asian networks.
  • Upon completion of acquisition of Sarthak TV - an Odiya language general entertainment channel, Sarthak Entertainment Pvt Ltd has become a wholly owned subsidiary of the company from 4th Dec 2015.
  • The board has decided to redeem 22.27 m unlisted preference shares of Rs 1 each which were issued in Sep 2014.


What to expect?

As per the management, with its steadily improving economic scenario India has outperformed major emerging economies globally. It is of the opinion that India's domestic growth momentum continues to be healthy. New initiatives being planned by the government on both investment and policy front are likely to fuel economic growth in the coming quarters. It expects the media industry to benefit in this improved economic scenario through higher advertisement and subscription revenues.

At the current price of Rs 408, the stock is trading at 29.6 times our FY18 earnings estimate for the company. Considering these valuations, we recommend investors avoid buying the stock at these levels.

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