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Zee Entertainment: Topline marches on - Views on News from Equitymaster
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Zee Entertainment: Topline marches on
Oct 21, 2008

Performance summary
  • Topline increases by 43% YoY during 2QFY09.
  • EBITDA margins decline to 26% in 2QFY09.
  • Other income grows by 24% YoY during the quarter.
  • Excluding exceptional item, bottomline registers a growth of 17% YoY owing to topline growth and higher other income.
  • Topline and bottomline (excluding exceptional item) grow 41% YoY and 13% YoY respectively in 1HFY09.


Consolidated snapshot
(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 3,986 5,717 43.4% 7,902 11,136 40.9%
Expenditure 2,665 4,229 58.7% 5,384 8,207 52.4%
Operating profit (EBDITA) 1,321 1,488 12.7% 2,518 2,930 16.4%
EBDITA margin (%) 33.1% 26.0%   31.9% 26.3%  
Other income 225 280 24.4% 438 558 27.4%
Finance charges 85 223 162.2% 203 437 115.2%
Depreciation 55 65 18.1% 122 121 -1.0%
Profit before tax 1,405 1,479 5.3% 2,630 2,930 11.4%
Exceptional Item - 792   - 1,366  
Tax 435 489 12.6% 847 906 7.0%
Profit after tax/(loss) 971 1,782 83.5% 1,784 3,389 90.0%
Net profit margin (%) 24.4% 31.2%   22.6% 30.4%  
No. of shares (m)         434.0  
Diluted earnings per share (Rs)*         13.3  
Price to earnings ratio (x)*         11.0  
*On trailing twelve months earnings

What has driven performance in 2QFY09?
  • Consolidated financials of Zee Entertainment include the results of Taj TV, ETC Networks and Zee Turner Limited.

  • Zee TV averaged 219 weekly GRPs during 2QFY09 and attained a channel share of 20% in the Hindi general entertainment channel genre. The channel continues to dominate its genre in the Top 50 chart with a weekly average of 19 out of the top 50 programs. Zee Cinema continues to lead the Hindi cinema genre with 33% channel share. As a result, the company witnessed 30% growth in its advertising revenue and 38% growth in subscription revenue.

    Revenue break-up
    (Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
    Advertising Revenue (Net) 2,195 2,851 29.9% 4,239 5,650 33.3%
    % sales 55.1% 49.9%   53.6% 50.7%  
    Subscription Revenue 1,625 2,244 38.1% 3,306 4,394 32.9%
    % sales 40.8% 39.3%   41.8% 39.5%  
    Other Sales & Services 166 621 273.4% 358 1,092 205.5%
    % sales 4.2% 10.9%   4.5% 9.8%  

  • The operating margins were largely impacted due to the sports business, which had a negative operating profit during 2QFY09 due to high cost of the India vs. Sri Lanka cricket series rights.

  • Zee Entertainment witnessed an increase in programming and operating costs to the tune of 57% on the back of startup cost of new channels, incremental hours of original content programming, higher cost of movie rights, cost of cricket series rights and inflationary increase.

  • Zee Entertainment received a refund of tax from the Income Tax department in 2QFY09. Though disputed by IT department in the appeal, the company has written back the excess tax provision of Rs 792 m. We have treated the sum as an exceptional item.

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 146, the stock is currently trading at 14.5 times our estimated FY11 earnings. We hold a positive view on the stock.

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