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Zee Ent : Ads continue to disappoint - Views on News from Equitymaster

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Zee Ent : Ads continue to disappoint
Oct 21, 2011

Zee Entertainment has announced its 2QFY12 results. The company has reported 1% YoY growth in sales and 26.7% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Topline grew 1% YoY during the quarter and 2% during the year so far. This was mainly on account of poor performance in advertising.
  • Operating margins however increased to 28.9% in 2QFY12 from the 26.5% in the corresponding quarter last year.
  • Other income increased by 16.5% YoY during the quarter and by 46% for the year till date (6 months).
  • Net income grew by 26.7% YoY during the quarter and 37.6% during the year till date.


Financial performance snapshot
(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Net sales 7,116 7,184 1.0% 13,886 14,167 2.0%
Expenditure 5,230 5,108 -2.3% 10,130 10,531 4.0%
Operating profit (EBDITA) 1,885 2,076 10.1% 3,756 3,636 -3.2%
EBDITA margin (%) 26.5% 28.9%   27.0% 25.7%  
Other income 240 279 16.5% 366 534 46.0%
Interest 5 56 1085.1% 55 86 55.4%
Depreciation & amortisation 56 78 38.9% 118 167 41.2%
Profit before tax 2,064 2,221 7.6% 3,948 3,917 -0.8%
Exceptional items - -   328 -  
Tax 801 621 -22.4% 1,511 1,015 -32.8%
Profit after tax before minority 1,263 1,600 26.7% 2,109 2,901 37.6%
Share of minority - -   - -  
Profit after tax 1,263 1,600 26.7% 2,109 2,901 37.6%
Net profit margin (%) 17.7% 22.3%   15.2% 20.5%  
No. of shares (m)         966.2  
Diluted earnings per share (Rs)*         4.6  
P/E (x)         24.3  
(*trailing twelve month earnings)

What has driven performance in 2QFY12?
  • Zee Entertainment's revenues grew by a marginal 1% YoY during the quarter. This was largely on account of advertising revenues falling by 4% during the quarter and 2% during the 6 month period. Subscription revenues, however, managed to grow by 6% YoY during the quarter.

    Revenue Break up
    (% of sales) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
    Advertising Revenue 4,122 3,949 -4.2% 7,891 7,737 -1.9%
    % sales 57.9% 55.0%   56.8% 54.6%  
    Subscription Revenue 2,737 2,910 6.3% 5,351 5,961 11.4%
    % sales 38.5% 40.5%   38.5% 42.1%  
    Other sales and services 257 324 25.9% 644 469 -27.2%
    % sales 3.6% 4.5%   4.6% 3.3%  

  • Operating expenditure declined by 2.3% during the quarter resulting in operating margins increasing to 28.9% in 2QFY12 from 26.5% in the corresponding quarter last year. What helped matters was the significant fall in programming and operating costs from 48.6% of sales in 2QFY11 to 44.9% in 2QFY12. However, for the 6 month period, operating margins were down by 1.3% as a result of which operating profits fell by 3% YoY.

  • Interest costs and depreciation charges rose significantly during the quarter and put pressure on PBT (profits before tax), whose growth at 8% YoY was lower than the growth in the operating profits. However, a sizeable dip in tax expenses enabled the company to prop up its bottomline growth (up 27% YoY). For the six month period, growth in net profits (excluding extraordinary items) stood at 19% YoY.

  • The company's flagship channel Zee TV recorded average channel share of 20% and average weekly Gross Rating Points (GRPs) of 189. The channel delivered an average 17 of the top 100 weekly shows in the quarter.

What to expect?
At the current price of Rs 112, the stock trades at a multiple of around 24 times its trailing twelve month earnings per share. The management held a conference call to discuss the company's future plans and strategies. We will shortly update you with the key takeaways from the call.

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