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Zee: New channels suppress growth

Jun 1, 2001

Zee TV reported encouraging performance for the fourth quarter of the year. Its 4QFY01 profits soared by 78% on a consolidated basis and 132% on a standalone basis. The company's operating margins have however taken a hit.

Zee Network (Consolidated)
(Rs m)FY00FY01Change4QFY004QFY01Change
Sales 7,755 9,572 23.4% 2,091 2,785 33.2%
Other Income 114 586 413.9% 15 206 1238.3%
Expenditure 5,643 7,224 28.0% 1,759 2,377 35.1%
Operating Profit (EBDIT) 2,112 2,349 11.2% 332 408 22.9%
Operating Profit Margin (%)27.2%24.5%15.9%14.7%
Interest 112 552 393.1% 15 195 1232.2%
Depreciation 101 154 52.7% 35 52 46.6%
Profit before Tax2,0132,22810.7%29836823.7%
Tax 405 394 -2.7% 74 (30)
Profit after Tax/(Loss) 1,608 1,834 14.0% 223 398 78.4%
Net profit margin (%)20.7%19.2%10.7%14.3%
No. of Shares (eoy) (m) 408.6 412.5 408.6 412.5
Diluted Earnings per share* 3.9 4.4 2.23.9
P/E (at current price) 30 35
*(annualised)

Zee TV reported encouraging performance for the fourth quarter of the year. Its 4QFY01 profits soared by 78% on a consolidated basis and 132% on a standalone basis. The company's operating margins have however taken a hit.

Zee's impressive earnings growth was boosted by a significant rise in other income which accounted for about 32% of net profits in FY01 on a consolidated basis. Excluding the other income, the company's profits actually dipped by 17%.

Zee Telefilms (Standalone)
(Rs m)FY00FY01Change4QFY004QFY01Change
Sales 2,870 3,847 34.0% 737 1,198 62.5%
Other Income 101 511 407.0% 44 166 282.3%
Expenditure 1,830 2,484 35.8% 523 858 64.2%
Operating Profit (EBDIT) 1,040 1,363 31.0% 215 340 58.3%
Operating Profit Margin (%)36.2%35.4%29.1%28.4%
Interest 84 211 152.6% 23 82 265.8%
Depreciation 25 43 71.5% 4 14 229.3%
Profit before Tax1,0331,62056.9%23241177.1%
Tax 210 238 13.2% 28 (62)
Profit after Tax/(Loss) 823 1,382 68.0% 204 473 131.9%
Net profit margin (%)28.7%35.9%27.7%39.5%
No. of Shares (eoy) (m) 408.6 412.5 408.6 412.5
Diluted Earnings per share*2.03.32.04.6
P/E (at current price) 40 29
*(annualised)

Operating margins of the company are sliding quarter over quarter. The higher costs of programming seem to be the main cause for the pressure on the margins. New channel losses and write offs at UK operation contributed a fall in OPM. Nevertheless, the company is optimistic about maintaining its growth rates in the coming years. Its initiatives in digitizing channels and converting into pay mode is expected to fuel its future earnings growth. It expects to garner close to Rs 1 bn by converting Zee into a pay channel. Though the initial response to the new channels are encouraging, it remains to be seen as to whether the company would able to make a strong foothold over the long run (especially in the southern languages).

At the current market price of Rs 135, Zee is trading at a P/E of 30x on a consolidated basis and 40x on a standalone basis. The company's decision to bring strategic partner and success of pay TV strategy will determine its future valuations.

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