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Zee Entertainment: Feel good story - Views on News from Equitymaster
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Zee Entertainment: Feel good story
Jul 24, 2008

Performance summary
  • Topline increases by 38% YoY during 1QFY09.
  • EBITDA margins decline to 26.6% in 1QFY09 down from 30.6% in 1QFY08.

  • Other income grows by 31% YoY during the quarter.

  • Bottomline registers a growth of 108% YoY owing to topline growth, higher other income and write back of tax provided in earlier years. Excluding the write back, bottomline grows 33.3% YoY.



Consolidated financial snapshot
(Rs m) 1QFY08 1QFY09 Change
Net sales 3,916 5,420 38.4%
Expenditure 2,719 3,978 46.3%
Operating profit (EBDITA) 1,197 1,442 20.5%
EBDITA margin (%) 30.6% 26.6%  
Other income 213 278 30.5%
Finance charges 118 214 81.1%
Depreciation 67 55 -16.8%
Profit before tax 1,225 1,450 18.4%
Tax 412 417 1.2%
Earlier years' tax written back - 574  
Minority interest 42 6  
Profit after tax/(loss) 771 1,601 107.7%
Net profit margin (%) 19.7% 29.5%  
No. of shares (m) 434 434  
Diluted earnings per share (Rs)*   10.7  
Price to earnings ratio (x)*   21.0  
*On trailing twelve months earnings

What has driven performance in 1QFY09?
  • Consolidated financials of Zee Entertainment include the results of Taj TV, ETC Networks and Zee Turner Limited.

  • Despite intensifying competition in the TV broadcasting space, the company maintained its TV Ratings. Zee TV presently has 19 out of top 50 programmes in the Hindi GEC genre with average GRPs of 226 per week during 1QFY09, leading to a 37% YoY growth in advertisement revenue.

    Revenue break-up
    (Rs m) 1QFY08 1QFY09 Change
    Advertising Revenue (Net) 2,044 2,798 36.9%
    % sales 52.2% 51.6%  
    Subscription Revenue 1,681 2,150 27.9%
    % sales 42.9% 39.7%  
    Other Sales & Services 191 471 146.5%
    % sales 4.9% 8.7%  

  • The company entered into full-fledged film production and distribution business under its newly formed division Zee Entertainment Studios with two different brands viz. Zee Motion Pictures and Zee Limelight. It plans to produce and distribute films in six languages namely Hindi, Marathi, Bengali, Telugu, Tamil and Kannada. During 1QFY09, two films, Jannat (Hindi) and De Dhakka (Marathi) were released.

  • During 1QFY09, start-up losses of Zee Next were Rs. 397.8 million. Zee Entertainment plans to hive off the channel effective from July 2008.

  • Programming and operating costs were higher in 1QFY09 due to start up costs of Zee Next, Zee Entertainment Studios - film business and other new initiatives. On a like to like basis increase in costs on account of existing businesses have gone up 21% YoY in 1QFY09 as against the increase in total cost by 49%.

  • Staff cost in 1QFY09 has gone up by 84% as it includes one time payment of incentives to employees along with their increments for the year.

    Cost break-up
    (Rs m) 1QFY08 1QFY09 Change
    Prog and Operating Cost 1,585 2,366 49.3%
    % sales 40.5% 43.7%  
    Staff cost 375 691 84.3%
    % sales 9.6% 12.7%  
    Selling & Other expenses 759 921 21.3%
    % sales 19.4% 17.0%  
    Total cost 2,719 3,978 46.3%
    % sales 69.4% 73.4%  

  • During 1QFY09, foreign currency convertible bonds aggregating US$ 1.5 m were converted into equity shares, resulting in an increase of paid up capital of the company by 440,346 equity shares of Re. 1 each.

  • Zee Entertainment was allowed certain claims by the appellate authorities under the Income Tax Act, 1961 for various assessment years. Though disputed by IT department, the excess tax provision of Rs. 574 m was written back in 1QFY09 on the basis of expert advise.

What to expect?
We expect the growth of the TV broadcasting sector to be relatively less affected even in the event of an economic slowdown and believe that Zee will be able to capitalise on the same given its strong position in the sector. At the current price of Rs 225, the stock is currently trading at 16 times our estimated FY11 earnings. We hold a positive view on the stock.

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