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Zee Ent : Disappointing growth in ad revenue
May 24, 2012

Zee Entertainment has announced the results for the fourth quarter of FY2011-12. The company has reported 9.3% YoY growth in sales and 18.6% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • The company's topline grew by 9.3% YoY during the quarter and by 1.1% during the full year 2011-12. Slowdown in advertising which fell by 12% YoY impacted the overall revenue growth.
  • Operating profits were down 28% YoY during the quarter. This was due to a huge jump in other operating expenses of 72% YoY.
  • Operating margins thus fell by more than 9% during the quarter and by 3% during the last 12 months.
  • Other income registered an increase of 78.7% YoY in the March quarter.
  • Lower depreciation and interest charges could not help much and the media company reported a fall of 18.6% YoY in net profits for the March quarter. The same fell by 1.4% YoY for the full year.
  • Zee Entertainment declared a dividend of Rs 1.5 per share implying a dividend yield of 1.2% at current prices.

Consolidated financial performance
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 7,954 8,691 9.3% 30,088 30,406 1.1%
Expenditure 5,732 7,091 23.7% 21,870 23,010 5.2%
Operating profit (EBDITA) 2,222 1,600 -28.0% 8,219 7,396 -10.0%
EBDITA margin (%) 27.9% 18.4%   27.3% 24.3%  
Other income 285 510 78.7% 883 1,384 56.7%
Interest 9 (219) -2504.4% 88 50 -43.9%
Depreciation &amortisation 93 81 -12.2% 289 323 1.8%
Profit before tax 2,406 2,247 -6.6% 8,725 8,407 -3.6%
Exceptional items 131 -   197 -  
Tax 342 618 80.7% 2,671 2,500 -6.4%
Profit after tax before minority 1,933 1,630 -15.7% 5,858 5,907 0.8%
Minority interest (35) 30   (118) 17  
Share of profit & loss of associate - 2   0 2  
Profit after tax 1,968 1,602 -18.6% 5,976 5,892 -1.4%
Net profit margin (%) 24.7% 18.4%   19.9% 19.4%  
No. of shares (m)         958.8  
Diluted earnings per share (Rs)*         6.1  
P/E (x)         20.4  
(*trailing twelve month earnings)

Note: Domestic subscription revenues and operating expenses are not comparable to the corresponding quarter last year as a part of these relate to recently formed joint venture MediaPro Enterprises.

What has driven performance in 4QFY12?
  • The company's topline grew by 9.3% YoY during the quarter and by 1.1% during the full year 2011-12. Slowdown in advertising which fell by 12% YoY impacted the overall revenue growth.

    Revenue Break up
    (% of sales) 4QFY11 4QFY12 Change FY11 FY12 Change
    Advertising Revenue 4,722 4,150 -12.1% 17,010 15,841 -6.9%
    % sales 59.4% 47.7%   56.5% 52.1%  
    Subscription Revenue 3,090 4,022 30.2% 11,259 13,245 17.6%
    % sales 38.8% 46.3%   37.4% 43.6%  
    Other sales and services 142 519 264.8% 1,819 1,320 -27.5%
    % sales 1.8% 6.0%   6.0% 4.3%  

  • The company's topline grew by 9.3% YoY during the quarter and by 1.1% during the full year 2011-12. Slowdown in advertising which fell by 12% YoY impacted the overall revenue growth.

  • Advertising revenues fell by 12% YoY during the quarter and by 6.9% YoY during the financial year 2012.

  • Subscription revenue registered a growth of 30.2% YoY during the quarter. The same grew by 17.6% YoY for the whole year.

  • Operating expenditure saw an increase of 23.7% YoY during the quarter. Other expenditure jumped by 72% YoY but this was largely due to expenses related to MediaPro for the period July 2011 to March 2012.

  • The company changed its accounting system to comply with joint venture accounting as per accounting standards. This implies that forex losses are now reported in other income as compared to finance costs as done earlier.

  • Other income registered an increase of 78.7% YoY in the March quarter. For the full year, other income grew by 56.7% YoY.

  • The company's flagship channel Zee TV recorded average channel share of 18.7% and average weekly Gross Rating Points (GRPs) of 196. The number of Zee shows that featured in the top 100 stood at 16 as against 15 in the previous quarter (Q3FY12).

What to expect?
At the current price of Rs 125, the stock is trading at a multiple of 20 times our estimated FY14 earnings. Zee recently got into a distribution joint venture with Star called MediaPro Enterprises which is doing well. The media company is focusing on building its content and strengthening its marketing efforts to grow its business. This is likely to impact operating margins in the near future. The channel would benefit out of compulsory digitization that would soon see the light of the day in the metro cities of India and then later the entire country. With economic environment not seeing too bright and expected to remain like this for some time to come, revenues from advertising would be hard to get. As per the management, sports segment will continue to incur losses for some more time. Keeping all these things into view, we maintain our negative view on the stock.

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