Zee TV has targeted a turnover of Rs 100 bn by the year 2005 and a pre–tax profit of Rs 30 bn. This has to be seen in the context of the current numbers where the company had an operational revenue of Rs 2.86 bn (excluding the revenue from the sale of a part of the library) and a pre tax profit of Rs 991 m. This implies a compounded growth rate of 103.5% per annum in sales and 97.7% growth in pre–tax profits per annum for the next five years!
The EPS works out to a level of Rs 50 in the year 2005 (assuming Zee dilutes equity by 10% and pays a tax of Rs 8 bn in that year). The stock is thus quoting at an earning multiple of 10 times year 2005 earnings.
The main drivers of this growth are the increase in the revenue per home from a level of Rs 7–8 per home to Rs 240 per home as Zee gets a tighter control over the revenue stream of the pay channel (via Siticable). The increase in the revenue will be supported by 26 new channels being offered in a bouquet and Zee TV itself becoming a pay channel in July 2001.
The total investments envisaged in the upgrading of the cable network and the broadcasting infrastructure are to the tune of Rs 24 bn. The management however was not forthcoming over the way the issue would be funded except for promising that not more than 10% of the equity would be diluted.
On the satphone venture Agrani, the Essel group has planned a total investment of $ 800 m in the project of which $ 400 m has already been invested. However, there has been a slight change in strategy with the group not restricting its stake to a single satellite but taking a stake in other satellites as well. The 20% stake in ICO Global was part of this strategy.
The stock however seems to be tanking as the company’s profitability remains under pressure with the return on net worth working out to hardly 9% (even if one includes the income from the sale of library). This could only be exacerbated in the near future as the money for the expansion bloats the net worth by another Rs 24 bn.
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