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Zee: Subscription show

Oct 16, 2003

Zee TV has posted a 18% growth in revenues and a 29% rise in net profit for the second quarter ended September 2003. While growth numbers are not entirely comparable owing to the inclusion of Padmalaya Telefilms' numbers in 2QFY03, as expected, advertisement revenues have started to show signs of recovery.

Zee Telefilms (Consolidated)
(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
Sales 2,746 3,231 17.7% 5,234 6,124 17.0%
Other Income 197 164 -16.8% 359 355 -1.2%
Expenditure 1,942 2,217 14.2% 3,672 4,209 14.6%
Operating Profit (EBDIT) 804 1,014 26.2% 1,562 1,915 22.6%
Operating Profit Margin (%) 29.3% 31.4%   29.8% 31.3%  
Interest 200 192 -3.8% 382 362 -5.3%
Depreciation 81 70 -12.9% 137 152 10.6%
Profit before Tax 721 916 27.1% 1,402 1,757 25.3%
Extraordinary items - - - - - -
Tax 175 215 22.9% 380 433 13.9%
Profit after Tax/(Loss) 546 701 28.5% 1,022 1,324 29.5%
Net profit margin (%) 19.9% 21.7%   19.5% 21.6%  
No. of Shares (m) 412.5 412.5   412.5 412.5  
Diluted Earnings per share (Rs)* 5.3 6.8   5.0 6.4  
P/E (x)         21.3  

Though sales, on the first look, seem to have grown by 18% in 2QFY04, it includes revenues from Padmalaya Telefilms to the tune of Rs 170 m. Excluding this inclusion, comparable revenues have increased by 12%. After remaining weak in FY03, advertisement revenues have shown a marginal growth of 2% on a YoY basis. But on a quarter on quarter basis, which would reflect the actual growth in adspend, the growth in ad revenues is around 20%. This is a very encouraging sign and is helped by various factors like advertisers returning back to Zee post the World Cup cricket fever, revision in rates by Zee and general improvement in economic activity.

On the subscription revenues front, revenues grew by 23% led by a more than 500% jump in domestic subscription revenues. The company foresees a 40%-50% growth in subscription revenues going forward (excluding CAS). The company's international pay revenue grew by over 13% YoY during the quarter to Rs 643 m (up 4% QoQ).

Consolidated revenue mix...
(Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
Content & broadcasting 2,340 2,588 10.6% 4,526 4,894 8.1%
PBIT margin (%) 35.6% 36.3%   34.4% 34.2%  
Access 444 453 1.9% 799 921 15.1%
PBIT margin (%) -4.7% -2.7%   -1.5% -0.8%  
Education 33 35 5.7% 63 52 -18.6%
PBIT margin (%) -268.5% 5.1%   -193.4% -3.9%  
Film production & distribution 1 261 - 1 527 -
PBIT margin (%) 18.2% 6.0%   18.2% 19.0%  
Others 36 25 -31.4% 36 25 -31.4%
PBIT margin (%) 2.2% 1.2%   2.2% 1.2%  
Total 2,854 3,361 17.8% 5,426 6,419 18.3%
PBIT margin (%) 23.1% 32.8%   52.1% 55.0%  

Operating margins improved by 210 basis points to over 31% during the quarter. The company sees the growth in advertising revenues continuing. Zee reduced its debt burden by Rs 1.6 bn during the quarter. This is likely to result in a reduction in the debt servicing costs of the company going forward.

The Conditional Access System (CAS) is expected to be a big boost to the company. However, the lacklustre implementation of the same, has not seen the company gaining significantly from it, as yet. The company has logged in a loss of Rs 65 m on its CAS operations till date.

At the current price of Rs 137 the stock trades at 21.3x annualised 1HFY04 revenues. Though CAS has been a dampener for the company, the revival in advertising revenues, as well as the company's renewed focus on strengthening its flagship channel (Zee TV) is a positive. Also, though CAS has been stalled for the time being, the fact that it has been passed by the parliament points to the fact that it is a reality going forward.

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