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Zee Entertainment Enterprises (ZEE.BO) Rs118.00
Equity Research
First Take:Adj.3QFY11 results below expectations; ests under review
News
Zee Entertainment announced 3QFY11 net profit of Rs 1554 mn – mostly inline with our and BB consensus estimates. However, adjusting for the Rs
700 mn that the company received as one-time fees for premature
termination of sporting event rights, net profit was down c.13%
sequentially and c.23% below our estimates. Programming costs as a % of
sales( after adjusting for the Rs 700mn one-time income) rose to 55% - vs.
the 43% levels seen in FY10, significantly impacting operating
performance.
Analysis
Though the company continues to register strong advertising and
subscription revenues- the continuing increase in content costs is a key
concern, in our view, especially given that the company’s flagship channel
Zee TV has lost significant market share in the Hindi GEC space over the
last several weeks. The sports business continues to incur losses –
registering a loss of about Rs 300 mn during 3QFY11. Total losses in this
business FY11 YTD has been about Rs1200mn.
Implications
We place our estimates, target price and rating under review pending
further details from the company during its conference call planned for 17th January 2011.
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