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Blurred vision on Zees channel

May 11, 2000

The market seems to have reacted negatively to the news that almost 65% of Zees operating profit have come from the sale of a part of library to its sister concern Asia Today Ltd. (ATL). Another interesting factor is that the effective tax rate for the company has fallen to 7.3% (from the level of 24% last year). The company does not seem to have provided for tax on the sale of the library. The company has not provided a clear explanation of the tax provision itself. Perhaps the only possible explanation could be that the company has treated the part sale of the library to ATL as exports and hence the company has claimed a tax exemption on the same.

More significantly, however, the company has drastically scaled down its American Depository Receipts (ADR) issue from the level of $ 1.5 bn (Rs 66 bn) to a level of $ 250 m (Rs 11 bn). A part of the capex requirement is now to be met through the sale of a 10% stake in Siticable, its cable venture.

The company has reportedly valued its cable business at $ 250 per home and with a reach of over 4 m homes the valuation for the company would work out to around Rs 44 bn. This works out to around 75 times the company's March 2000 turnover. (Siticable has reported a revenue of Rs 590 m for March 2000. One is however not sure whether the company's share of revenues from Siticable's joint ventures with individual cable operators have been consolidated. If one calculates the revenues based on Siticable's subscribers the total revenues works out to over Rs 11 bn assuming that 70% revenues accrues from subscribers and 30% from advertisers. In that case the valuation comes to around four times its annual revenues.) A 10% stake should logically fetch the company around Rs 4.4 bn.

Subscriber base (in million homes) 4.0
Subscription revenue (in Rs bn) 9.0
Advertisement revenue (in Rs bn) 2.7
Total revenues (in Rs bn) 11.7

Note: Subscription revenue has been calculated at Rs.150 per month for 4.0 mn subscribers.

Thus the total funds that the company would be able to garner would be around Rs 15 bn (Rs 11 bn from the ADR plus Rs 4.4 bn from the sale of the stake in Siticable) almost a fourth of what it had originally planned. It would be interesting to see how the company manages it funding requirement.

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