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Zee Ent : Strong growth in advertising - Views on News from Equitymaster
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Zee Ent : Strong growth in advertising
Oct 22, 2012

Zee Entertainment has announced the results for the second quarter of FY2012-13. The company has reported 33.8% YoY growth in sales and 17.5% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • The company's revenues grew at a robust pace registering 33.8% increase as compared to the same quarter last year. For the half year period, revenues grew by 27.3% YoY.
  • Advertising segment continued to do well and recorded 33.7% YoY growth even amidst unfavourable economic scenario. Subscriptions too were up by 35.7% YoY.
  • Zee continues to make investments in content which implied higher programming costs for the media company.
  • Operating expenditure was thus up by 44% YoY and operating profits increased by 7.7% YoY.
  • Depreciation charges went up by 22% YOY during the quarter and interest charges jumped by 135% YoY during the same period.
  • Zee was able to report a net profit growth of 17.5% YoY during the quarter on back of good performance at topline level despite higher costs. However, the net profit margins shrank by 2.7% from 22.4% in same quarter last year to 19.7% at present.

Financial performance snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 7,128 9,535 33.8% 14,112 17,965 27.3%
Expenditure 5,108 7,359 44.1% 10,531 13,456 27.8%
Operating profit (EBDITA) 2,020 2,176 7.7% 3,582 4,509 25.9%
EBDITA margin (%) 28.3% 22.8%   25.4% 25.1%  
Other income 289 260 -9.9% 525 562 7.0%
Interest 10 23 135.4% 23 41 79.6%
Depreciation & amortisation 78 95 22.0% 167 194 16.4%
Profit before tax 2,221 2,319 4.4% 3,917 4,836 23.5%
Exceptional items - -   - -  
Tax 621 444 -28.6% 1,015 1,391 37.0%
Profit after tax before minority 1,600 1,875 17.2% 2,901 3,445 18.7%
Minority interest 2 (2)   (33) (14)  
Share of profit & loss of associate - -   - -  
Profit after tax 1,598 1,877 17.5% 2,935 3,458 17.8%
Net profit margin (%) 22.4% 19.7% -2.7% 20.8% 19.3%  
No. of shares (m)           953.96
Diluted earnings per share (Rs)*           6.75
P/E (x)           28.46
*On a trailing 12-months basis

What has driven performance in 2QFY13?
  • The company's topline grew by 33.8% YoY during the quarter and by 27.3% YoY during the 6 month period ended September 2012. Advertising segment grew by 33.7% YoY aided by growth in segments like lifestyle, jewellery, FMCG, consumer durables and retailing. Zee was also able to report 35.7% YoY growth in subscriptions. This was due to its distribution tie up with Star called 'Media Pro' as well as the run up to mandatory digitization regime in the 4 metros by the end of October 2012.

    Revenue Break up
    (% of sales) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Advertising Revenue 3,949 5,281 33.7% 7,737 9,753 26.1%
    % sales 55.4% 55.4%   54.8% 54.3%  
    Subscription Revenue 2,910 3,950 35.7% 5,961 7,591 27.3%
    % sales 40.8% 41.4%   42.2% 42.3%  
    Other sales and services 268 305 13.6% 414 621 49.9%
    % sales 3.8% 3.2%   2.9% 3.5%  

  • Other sales and services saw an increase of 13.6% YoY during the September quarter.

  • Zee continues to make investments in content which implied higher programming costs for the media company. Operating expenditure was thus up by 44% YoY and operating profits increased by 7.7% YoY during the quarter.However, operating margins shrank by nearly 5.5%.

  • Depreciation charges went up by 22% YOY during the quarter and interest charges jumped by 135% YoY during the same period. Despite all this, Zee was able to report a net profit growth of 17.5% YoY during the quarter on back of good performance at topline level.

  • However, the net profit margins shrank by 2.7% from 22.4% in same quarter last year to 19.7% at present.

  • The company's flagship channel Zee TV maintained its average channel share of 22%. Average weekly Gross Rating Points (GRPs) were 237. The number of Zee shows that featured in the top 100 stood at 22.

What to expect?
Zee has seen good growth in domestic subscriptions revenues over past 2 quarters. This has largely been possible due to its distribution tie up with Star "Media Pro" and more people opting for digitization in the wake of mandatory digitization in the 4 metros. The media company's advertising revenues too have been growing well. However, increased investment in content and marketing has affected the profit margins. Zee is planning to add more hours to its kitty and continue to invest more into its existing business in all ways possible. It is also looking at entering newer avenues namely a kids channel and internet based platforms. All this would continue to exert pressure on the profitability of the company going forward. At the current price of Rs 192, the stock is trading at a multiple of 28 times its trailing twelve month earnings. Keeping these high valuations in mind, we maintain our Sell view on the stock.

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