• JULY 29, 2003

Zee: Waiting for the ‘CAS’ push

Zee Telefilms, India’s largest private sector media major, has reported a subdued standalone performance for 1QFY04. The company has managed a meager 3% bottomline growth, albeit on a 2% fall in topline. The effect of the topline seems to have trickled down to operating margins also, which has taken a 170 basis points hit. On a consolidated basis, the company has registered a strong 31% bottomline growth on the back of a 16% topline growth.

Zee: Consolidated numbers…
(Rs m)1QFY031QFY04Change
Net Sales 2,488 2,893 16.3%
Other Income 162 191 17.7%
Expenditure 1,730 1,992 15.2%
Operating Profit (EBDIT) 758 901 18.8%
Operating Profit Margin (%)30.5%31.1% 
Interest 182 170 -6.9%
Depreciation 57 82 43.9%
Profit before Tax68284123.4%
Tax 205 218 6.3%
Profit after Tax/(Loss) 477 623 30.7%
Net profit margin (%)19.2%21.5% 
No. of Shares (m) 412.5 412.5  
Diluted Earnings per share*4.66.0 
P/E Ratio 19.0 
(* annualised)   

However, as far as consolidated results are concerned, it must be noted that in 1QFY04, financials of Padmalaya Enterprises (PTL) and ETC Networks (ETC) have been consolidated with Zee. As a result, growth is on the higher side.

Consolidated revenue breakup
Other sales & services72253249.9%

Zee’s topline is primarily a factor of a robust growth witnessed in subscription revenues, which have increased by a strong 41% YoY. Of this, the domestic subscription grew at a much faster rate of 68% as compared to international subscriptions (27%). Given this backdrop, contribution from the subscription segment stands at 49% of total revenues in 1QFY04. As we have maintained before, subscriptions hold long-term growth potential and not surprisingly, contribution from this division has for the first time surpassed that of the advertisement section (42% of revenues).

Advertisement revenues continue to show signs of weakness in line with the trend witnessed in the last few quarters, which could be attributed to the slowdown in the economy. The top advertisement spenders i.e. FMCG have lowered media spend and decline in Zee’s advertising revenues in 1QFY04 reflects this trend. The company has also attributed to the weakness in advertising revenues to lower adspend in early months of 1QFY04, which was a factor of the World Cup hangover. However, revenues from others (includes film production, distribution, music publication, syndication and education sales) showed a sharp spurt of 250%.

The company managed to improve its margins by 60 basis points. On the interest front, the consolidated interest outgo for the company reduced by 7%. It must be noted here that the company has managed to reduce its gross debt by Rs 1.6 bn since March 2003. Moreover, the company’s efforts at reducing its debtor’s days seem to be on track (down from 155 days in FY03 to 152 days in 1QFY04).

Zee: Standalone numbers…
(Rs m)1QFY031QFY04Change
Net Sales 930 916 -1.5%
Other Income 156 170 8.8%
Expenditure 682 687 0.6%
Operating Profit (EBDIT) 248 230 -7.5%
Operating Profit Margin (%)26.7%25.0% 
Interest 133 121 -8.9%
Depreciation 24 24 2.1%
Profit before Tax2472542.6%
Tax 81 83 2.2%
Profit after Tax/(Loss) 166 171 2.8%
Net profit margin (%)17.8%18.6% 
No. of Shares (m) 412.5 412.5  
Diluted Earnings per share*1.61.7 
(* annualised)   

At Rs 115, the stock is trading at 19x its 1QFY04 consolidated annualised earnings. While growth in subscription revenues has continued as expected, a recovery in adspend could benefit Zee in the coming quarters in light of higher economic growth prospect. With the promoters due now fully cleared, the company plans to further reduce its debt in 2QFY04, which will consequently lead to improved bottomline in the form of reduced interest outgo. To conclude, over the long-term, we expect CAS regime to boost revenues of the company significantly. However, given the management's tainted image among investors, the risk profile of the stock is on the higher side.

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