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Leading the media revolution - Views on News from Equitymaster
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  • Feb 18, 2000

    Leading the media revolution

    Zee Telefilms is definitely one of the more popular companies in India. And not just because it dishes out the favourite programs of million of Indians and services them through its cable and satellite network. A large part of the popularity has got to do with the company's stupendous performance in the stock markets. The company's stock is up 21 times during the last year.

    The reasons for the company's growing popularity among investors, management circles and company watchers are not far to seek. The company is promoted by Subhash Chandra, who, by virtue of his 70% holding, is now among the richest Indians. His other assets include the Essel Group of companies and more recently his majority stake (co-owned) in ICO Global.

    Zee Telefilms was part of the consortium (which included the Rupert Murdoch owned Star Network) that was responsible for revolutionising the Indian satellite television (media) sector. The company, which subsequently went on to buy out Rupert Murdoch's stake in both the joint ventures (Asia Today Limited, the broadcasting company, and Siticable Limited), today commands an enviable position in the Indian media sector.

    The company currently airs three channels (Zee TV, Zee News, Zee Cinema) in Hindi and three regional channels ('Alpha'). Apart from this, it has a presence in various other countries - Zee USA, Zee UK, Zee Africa and Zee Europe. The company owns 'Siticable' a leading cable operator in a number of major cities across the country and also has interests in education (Zee Education), which is primarily television based.

    Zee is revving up its media empire. It is in the process of launching a sports channel. Zee has already been awarded the satellite rights to telecast cricket matches in India and this should help it in establishing the new channel. The company is said to be in talks with Viacom (Nickelodeon) for launching a channel for children. This will ensure that Zee offers a complete bouquet of channels, thus making it easier to market them to tight fisted cable operators across the country.

    The kicker comes from Zee's plans to offer broadband services to customers via its satellite TV cable network. The company is already marketing this service in select pockets. Other players are still some time away from offering such a service. Then there are plans to establish Zee as a full-fledged portal on the Internet. The success of this service will help Zee establish a significant presence as an Internet service provider cum content provider. This factor has been one of the key drivers of the company's stock price in recent months.

    Zee is also focussing on increasing growth in activities that currently form a small portion of overall revenues. First involves giving a thrust to its print media business. As a second step the company plans to increase its presence in the movie production business. Finally, in a move that will also give its Internet ambitions a thrust, Zee plans to expand its retail cable network. The last of these will help the company in building up a subscription revenue base.

    Zee's financial performance continues to baffle company watchers. During the quarter ended 31st December 1999, the company's topline grew by 41 percent even as net profits surged 54 percent.

    (Rs m) 3QFY2000 3QFY1999 Change
    Sales & Services 874.6 620.5 41.0%
    Other Income 28.3 17.6 60.8%
    Expenditure 557.4 396.6 40.5%
    Interest 22.0 22.1 -0.5%
    Depreciation 6.9 6.3 9.5%
    Profit before Tax 316.6 213.1 48.6%
    Tax 68.0 52.0 30.8%
    Profit after Tax/(Loss) 248.6 161.1 54.3%
    Net profit margin (%) 28.4% 26.0%  

    Zee Telefilms is however facing stiff competition in all its business segments. Its satellite TV channels are losing market share to Sony India and a host of other newcomers. Infact the company's venture into regional channels was prompted by the extraordinary success of channels like Sun TV. Its cable business is competing with the likes of IN Network and a multitude of local operators that are resisting moves to sell out to Zee.

    The company's Internet foray has been greeted with cautious optimism. This is mainly due to intense competition among existing Internet service providers (ISP) and doubts that broadband may not be as successful in India due to the low quality of infrastructure and the high cost of service.

    Zee Telefilms recently completed a private placement of equity with Goldman Sachs to fund its future capex plans and its buyout of stakes in various joint ventures with Rupert Murdoch. With its restructuring now complete, Zee Telefilms is all set to carve its share in the Indian entertainment/Internet sector.



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