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Zee Entertainment Enterprises (ZEE.BO)
Neutral Equity Research
Above expectations on lower sports business losses; stay Neutral
What surprised us
Zee Entertainment reported FY11 net profit, adjusted for one-offs and
exceptional items of Rs5,709mn, 13% above our estimate. Better revenue
monetization in the sports business leading to lower losses (Rs152mn vs.
Rs330mn in 3QFY11) and strong growth in advertising (up 9% qoq) and DTH
subscription revenues (up 20% qoq) were the highlights of 4QFY11 results,
which were significantly above our and Bloomberg consensus estimates.
What to do with the stock
We raise our FY12E EBIT margin by about 100 bp to 25.8% due to better
margin performance seen in 4QFY11. However, we believe continuing
losses in the sports business, coupled with the need to invest in content
improvement in the Hindi GEC business, could continue to impact
margins. Thus, our FY12E EBIT margin is still below the FY10 margin of
about 27%.
On the back of our revisions to margins and the stronger-than-earlierexpected
growth that we now forecast for DTH subscription revenues, we
raise our FY12E-13E EPS by 5%-9%. Accordingly, we raise our 12m TP of
Rs135 (from Rs129) based on 20X FY12E EPS (unchanged) – in line with the
median 12m fwd P/E for the company. We also introduce our FY14E EPS of
Rs8.48. We retain our Neutral rating on the stock as we believe current
valuations adequately balance the strong growth outlook for advertising and
DTH subscription revenues with the risks from increasing competition in the
Hindi GEC space. Risks: Further increase in competition in the Hindi GEC
space, stronger-than-expected advertising revenue growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Zee Entertainment Enterprises (ZEE.BO)
Neutral Equity Research
Above expectations on lower sports business losses; stay Neutral
What surprised us
Zee Entertainment reported FY11 net profit, adjusted for one-offs and
exceptional items of Rs5,709mn, 13% above our estimate. Better revenue
monetization in the sports business leading to lower losses (Rs152mn vs.
Rs330mn in 3QFY11) and strong growth in advertising (up 9% qoq) and DTH
subscription revenues (up 20% qoq) were the highlights of 4QFY11 results,
which were significantly above our and Bloomberg consensus estimates.
What to do with the stock
We raise our FY12E EBIT margin by about 100 bp to 25.8% due to better
margin performance seen in 4QFY11. However, we believe continuing
losses in the sports business, coupled with the need to invest in content
improvement in the Hindi GEC business, could continue to impact
margins. Thus, our FY12E EBIT margin is still below the FY10 margin of
about 27%.
On the back of our revisions to margins and the stronger-than-earlierexpected
growth that we now forecast for DTH subscription revenues, we
raise our FY12E-13E EPS by 5%-9%. Accordingly, we raise our 12m TP of
Rs135 (from Rs129) based on 20X FY12E EPS (unchanged) – in line with the
median 12m fwd P/E for the company. We also introduce our FY14E EPS of
Rs8.48. We retain our Neutral rating on the stock as we believe current
valuations adequately balance the strong growth outlook for advertising and
DTH subscription revenues with the risks from increasing competition in the
Hindi GEC space. Risks: Further increase in competition in the Hindi GEC
space, stronger-than-expected advertising revenue growth.
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