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Zee Ent: Propelled by regional channels
Jul 21, 2010

Zee Entertainment has announced its 1QFY11 results. The company has reported a 42% YoY and 64% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 42% YoY during 1QFY11. Advertising revenue grows by 90% YoY, while subscription revenue grows by 9% YoY. Revenue from syndication, film distribution and education sales grows by 5% YoY. 1QFY11 results include the numbers of regional general entertainment channel business acquired from Zee News from January 2010 and hence are not comparable with 1QFY10 figures.
  • EBITDA margins improve to 27.6% in 1QFY11, up from 24.6% in 1QFY10 due to lower programming and operating costs.
  • Other income declines by 61% YoY during the period.
  • Excluding exceptional items, bottomline grows by 33% YoY in 1QFY11 on the back of topline growth, higher operating margins and lower finance charges.


Consolidated financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 4,759 6,770 42.2%
Expenditure 3,589 4,900 36.5%
Operating profit (EBDITA) 1,170 1,870 59.8%
EBDITA margin (%) 24.6% 27.6%  
Other income 325 126 -61.3%
Finance charges 91 51 -44.3%
Depreciation 75 62 -17.5%
Profit before tax 1,329 1,884 41.7%
Exceptional Item - 291  
Tax 416 673 61.9%
Profit after tax/(loss) 913 1,501 64.4%
Net profit margin (%) 19.2% 22.2%  
No. of shares (m)   484.5  
Diluted earnings per share (Rs)*   11.1  
Price to earnings ratio (x)*   27.9  
*On trailing twelve months earnings

What has driven performance in 1QFY11?
  • Zee Entertainment witnessed a 42% YoY growth in topline in 1QFY11. Advertising revenue grew by 90% YoY, while subscription revenue grew by 9% YoY. Revenue from syndication, film distribution and education sales grew by 5% YoY. It may be noted that 1QFY11 results include the numbers of regional general entertainment channel business (R-GEC) acquired from Zee News from January 2010 and hence are not comparable with 1QFY10 figures. Like-to-like numbers were not available.

  • During 1QFY11, advertising revenues grew by 90% YoY. They were driven by higher channel shares across the network, a far improved macro environment and a continued preference of advertisers towards television. Subscription revenues from domestic DTH were Rs 710 m during this quarter, an increase of 52% over 1QFY10.

    Revenue break-up
    (Rs m) 1QFY10 1QFY11 Change
    Advertising Revenue (Net)  1,980 3,769 90.4%
    % sales 41.6% 55.7%  
    Subscription Revenue 2,410 2,614 8.5%
    % sales 50.6% 38.6%  
    Other Sales & Services 370 387 4.5%
    % sales 7.8% 5.7%  

  • On the cost front, the company witnessed a 5% (as a percentage of sales) YoY decline in programming and operating cost during 1QFY11. Selling, admin & other operating expense (as a percentage of sales) went up by 1.5% during the period.

  • The company’s flagship channel Zee TV, had an average weekly channel share of 20% and average weekly gross rating points (GRPs) of 253 during 1QFY11. This was despite intense competition faced on account of sports properties aired during the quarter. It had on an average 17 of the top 50 and 29 of the top 100 weekly shows in the period.

  • Zee Entertainment has entered into a Joint Venture with Geodesic Limited with a 60% holding in the company to explore business opportunities in digital distribution of contents.

  • Zee Sports International, a subsidiary of the Zee Entertainment has increased its 82.2% shareholding in its subsidiary Taj TV Mauritius to 95% by an additional investment of US$ 12 m.

What to expect?
Our expectation that advertising revenues will recover from the decline experienced during the early part of FY10 has happened over the subsequent quarters. Going forward, we expect the advertising front to remain tightly linked to the volatile macroeconomic environment. However, we expect subscription numbers to remain strong. Over the long term, we believe that the TV broadcasting sector will continue to grow and that Zee will be able to capitalise on the same given its strong position in the sector.

However, the company tends to undertake frequent restructuring exercises, which makes the task of assessing shareholders’ wealth difficult. It creates unnecessary confusion in the mind of investors. The company will be well served by a little less chopping and changing.

At the current price of Rs 309, the stock is currently trading at 14 times its estimated FY13 earnings. At the current price, the stock does not provide the margin of safety we look for. As such we would advise against taking fresh positions in the stock.

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