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Zee Entertainment: Domestic subscription drives the show - Views on News from Equitymaster
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  • Apr 15, 2008 - Zee Entertainment: Domestic subscription drives the show

Zee Entertainment: Domestic subscription drives the show
Apr 15, 2008

Performance summary
  • Topline increases by 37% YoY during 4QFY08.
  • EBITDA margins remain unchanged at 25% in 4QFY08.

  • Other income surges by 147% YoY during the quarter.

  • Bottomline registers a growth of 49% YoY owing to topline growth, steady margins and higher other income.

  • Topline and bottomline grow 27% YoY and 63% YoY respectively in FY08.

Consolidated financial snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 3,844 5,260 36.8% 14,451 18,343 26.9%
Expenditure 2,893 3,957 36.8% 11,260 12,954 15.0%
Operating profit (EBDITA) 951 1,303 36.9% 3,191 5,389 68.9%
EBDITA margin (%) 24.7% 24.8%   22.1% 29.4%  
Other income 177 435 146.5% 761 1,111 46.0%
Finance charges 8 184 2094.0% 334 554 65.8%
Depreciation 56 54 -4.1% 185 222 20.2%
Profit before tax 1,064 1,500 41.0% 3,432 5,723 66.7%
Exceptional Item - (26)   - (26)  
Tax 365 430 18.0% 999 1,735 73.6%
Profit after tax/(loss) 699 1,044 49.4% 2,433 3,963 62.8%
Net profit margin (%) 18.2% 19.9%   16.8% 21.6%  
No. of shares (m)         433.6  
Diluted earnings per share (Rs)         9.1  
Price to earnings ratio (x)         24.1  

What has driven performance in 4QFY08?
  • The consolidated figures include the financials of Taj TV and ETC Networks.

  • The topline growth of 37% YoY during 4QFY08 was driven by buoyancy in advertising revenue which grew 33% during the period. The company expects a 15% hike in the ad rates for deals that have come up for renewal. During 4QFY08, average channel share of the flagship channel Zee TV stood at 31%, within the general entertainment genre. Zee TV averaged 273 GRPs during the period. As on March 2008, the channel had 25 programs in the ‘Top 50 Programs’ from just 2 in 2005.

  • Zee Cinema has continued its leadership position in the Hindi cinema genre, while Zee Café has become the leader in the English general entertainment space. Ten Sports and Zee Sports together command 33% of the sports broadcasting market.

  • The domestic subscription revenues stood at Rs 987 m, while international revenues were Rs 1,084 m. The revenues from DTH amounted to Rs 188 m. The company has witnessed a growth in domestic subscription but has not fared well on the international markets due to the dollar devaluation over 4QFY08. However, the management expects the subscription revenues to grow faster than the advertising stream in the future.

  • Revenue from "other sales and services" grew nearly 4 times due to higher syndication sales of Ten Sports and revenue from Education Business. The sports business revenues during 4QFY08 were Rs 526 m recording 11% YoY growth. The segment also posted an operating profit as against a loss in the corresponding quarter last year.

    Revenue break-up
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Advertising Revenue (Net) 1,849 2,466 33.3% 7,035 9,342 32.8%
    % sales 48.1% 46.9%   48.7% 50.9%  
    Subscription Revenue 1,849 2,071 12.0% 6,648 7,326 10.2%
    % sales 48.1% 39.4%   46.0% 39.9%  
    Other Sales & Services 146 723 394.5% 768 1,675 118.0%
    % sales 3.8% 13.8%   5.3% 9.1%  

  • Programming and operating cost grew by 34% YoY in 4QFY08 due to the costs involved in the newly launched channel Zee Next. Bottomline registered a robust 49% YoY growth outpacing the 37% YoY growth in operating profits due to the higher other income (up 147% YoY). This is despite the surge in finance charges, which include losses of Rs 116 m on account of foreign exchange derivative transactions in 4QFY08, as against Rs 59.4 m in 4QFY07.

    Cost break-up
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Prog and Operating Cost 1,632 2,192 34.3% 7,386 7,985 8.1%
    % sales 42.4% 41.7%   51.1% 43.5%  
    Staff cost 292 406 39.1% 1,017 1,430 40.6%
    % sales 7.6% 7.7%   7.0% 7.8%  
    Selling & Other expenses 969 1,359 40.2% 2,858 3,539 23.8%
    % sales 25.2% 25.8%   19.8% 19.3%  
    Total cost 2,893 3,957 36.8% 11,260 12,954 15.0%
    % sales 75.3% 75.2%   77.9% 70.6%  

What to expect?
At the current price of Rs 220, the stock is currently trading at 24 times its FY08 earnings. We shall soon update our view on the company.

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