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Zee: Will the slide stop?

Feb 21, 2001

Among the specified shares, Zee Telefilms, would arguably be one of the stocks, which has taken the biggest pounding over the last one year. It was around this time last year when the stock touched its high of Rs 1,630. After that, its been a decline all the way. At present, the stock quotes at a price that is just about 5% from its yearly low. We take a look at the valuation of one of Zees international peers News Corporation, the parent of Zees strongest competitor Star TV. News Corp is a US$ 14 bn (approx. Rs 627 bn) global media giant with interests in newspapers, magazines, television broadcasting channels, films and radio companies. The company has put in over US$ 800 m in China and US$ 500 m in India. While the Chinese investments seem to have bombed, in India Star TV reportedly has annual revenues of US$ 100 m (Rs 4.7 bn). In addition the company has plans to invest another US$ 300 m in India. These include around US$ 175 m in the existing businesses (programming, new channels, investments in cable companies) and around US$ 125 m in new businesses (portals, cybercafes, FM radio).

News CorpZee
CMPRs. 1,870 228
M capRs bn952.494.1
Turnover*Rs bn627.410.2
EPS#33.74.6
P/E55.649.6
M cap/sales1.59.3
52week range3,132/1,4021,630/217
% from 52 week low 33.30%4.84%

*The turnover and EPS figures for NewsCorp are for the 12 month period ended June 2000
Zee's turnover is the annualised turnover for the year ended March 2001 based on the 3QFY01 numbers

Zee seems to be going on a similar path although the group has scaled down its ambitions considerably. While both the stocks have been seen a downtrend over the last one year thanks to a cutback in advertising by leading FMCG companies the world over, Zees stock seems to have a got a bigger thrashing. At current valuations while the two stocks compare well on the earnings multiples, the fact remains that the market capitalisation/turnover ratio of Zee seems to be on the higher side. One reason for that could be that currently in the Indian markets apart from Zee there is no listed media company that has a presence in broadcasting, content creation, space selling and a cable network.

Whether Zee will continue to quote at such high market capitalisation in the coming years after (say) Sony were to be listed is difficult to say. What is more important however is that for the current earnings multiple to sustain it would have to grow its bottomline much faster than what it has been able to do in the recent past (the third quarter actually saw a 25% decline in the net profit).

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