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Zee Entertainment: 3QFY11 Results Update
Zee Entertainment 3QFY11 pre-exceptional profit at Rs1.14bn was
unexpectedly down 10%QoQ following a loss of Rs1.03bn (90% QoQ
higher) in its sports business. But advertising revenue was a surprise,
increasing 7%QoQ, aided by an improving ad environment and the
strength of a 20-plus channel network. The quarter also included Rs700m
one-time income for the premature termination of its sporting events, but
this is classified as exceptional. Adjusted for the sports business, Zee’s
Ebitda margin was 39%. Despite the downgrade in our estimates, we are
looking at 27% earnings growth for FY12-13CL and reiterate our BUY
recommendation on Zee.
Profit disappoints on sports business loss.
Zee Entertainment’s 3QFY11 operating revenue of Rs7.5bn, up 6% QoQ (42%
YoY), was 5% ahead of expectations due to a positive surprise in advertising
revenue. Zee has been consolidating its regional channels since 4QFY10
hence, quarter numbers are not comparable on a YoY basis. As testimony to
Zee’s strong core-operating performance, advertising improved 7%QoQ
despite stiff competition from star-studded mega reality shows of its peers.
But the company was hit by a loss of Rs1.03bn (90% QoQ higher) for its
sports business, which brought 3Q profit down by 10%QoQ. The quarter also
included Rs700m one-time income for the premature termination of its
sporting events, but this is classified as exceptional. Adjusted for the sports
business, Zee’s Ebitda margin was 39%.
DTH remains key driver of subscription revenue.
Industry DTH (direct-to-home) subscribers have crossed 30m and Zee’s
domestic distribution revenue of Rs1.8bn was up 3%QoQ and 24%YoY,
resulting in a 14%YoY improvement in overall subscriptions, to total Rs2.8bn.
International revenue was flatYoY but rose 2%QoQ as Zee is taking its
regional channels global and will consolidate operations. In turn, DTH led
domestic distribution revenue with collections up 4%QoQ and 30%YoY to
Rs821m, despite pressure on its per-subscriber realisation. Cable revenue
climbed 3%QoQ and 20%YoY, experiencing slower growth due to the rise of
DTH subscribers and ongoing government-mandated cable rate freeze since
2007, although this is due for a reset in the future.
Despite downgrade, earnings should grow 27% in FY12-13CL.
The disappointing sports business loss and the classification of one-time
income as an exceptional item drive our 6-15% earnings downgrade over
FY11-13CL. Nonetheless, led by the advertising upturn and ongoing DTH
services boom, we expect Zee’s FY12-13CL earnings to grow at an average
27% YoY. Besides, Zee’s balance sheet has improved and is in net cash, which
should enable rising dividends. We maintain our BUY call.
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