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Zee 1Q results: A jigsaw puzzle

Jul 8, 2000

On the face of it, Zee has reported exceptionally good results for the first quarter of the current year; a 57.5% growth in the bottomline on a 13.7% growth in the topline. However, the other income, which has increased almost ten fold, forms more than 29% of the pre–tax profits of the company. The company has not provided for the details of the other income.

(Rs m) 1Q1999 1Q2000 Change
Sales 622 707 13.7%
Other Income 12 104 776.5%
Expenditure 382 417 9.3%
Operating Profit (EBDIT) 240 290 20.6%
Operating Profit Margin (%) 38.6% 41.0%  
Interest 17 31 82.8%
Depreciation 8 7 -12.5%
Profit before Tax 227 356 56.8%
Other Adjustments      
Tax 58 89 54.5%
Profit after Tax/(Loss) 170 267 57.5%
Net profit margin (%) 27.3% 37.8%  
Earnings per share* 3.61 2.59  
(annualised)      

Also, the increase in transmission cost due to Direct to Operator (DTO) service, the cost of the two new channels, Zee English and Zee Movies apart from the digitalisation of six of the group's channels does not seem to have been provided for in the table above. If we account for this, the net profit has actually declined by 25%!

Exceptional items written off * Rs m
   
Amortisation of film library 98
(sold to ATL last year)  
Interest on syndicated loans 59
(raised for the library sell off)  
Forex conversion loss 25
(advertising booked in India)  
Increased transmission cost 95
(due to DTO service)  
Cost of two new channels 47
Loss of two new subsidiaries 66
(E-connect and Zee Interactive)  
   
*(in consolidated A/c's)  

The stock quotes at Rs 458 which implies an earning multiple of 177 times. The earning multiple jumps to 378x if one were to provide for the expenses stated above. The stock looks distinctly overvalued.

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