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Zee Entertainment
Impressive 4Q; positive
surprise from sports business
Retain Buy post strong 4Q
ZEEL reported an impressive quarter with significant reduction in sports losses
led by strong ad growth in sports and a flattish growth in revenues (ex sports)
QoQ despite a seasonally weak 4Q. While we think the stock could languish near
term given recent outperformance to broader markets, we retain our Buy rating,
given 1) our view that the demand environment for ad spends remains robust,
2) likely continued momentum in subscription revenues led by DTH, and 3) lower
losses in sports business in FY12E (Rs1bn vs. Rs2bn in FY11) as reflected in
management guidance. Valuations, at 16x FY13E, remain attractive for 20% EPS
CAGR (FY11-13E), in our view.
Sports business : Losses significantly lower than expected
4Q revenues grew 36% yoy, 23% ahead of BofAMLe driven by strong 130% yoy
growth in sports revenues. Consequently losses in sports business stood at
Rs150mn vs. Rs1bn in 3Q and significantly better than our expectation of
Rs600mn. Management now expects losses in FY12 to halve to Rs1bn, driven by
lower telecast right costs.
Ex sports: growth despite seasonally weak quarter
Performance in other segments (ex sports) was impressive, with flattish QoQ
growth in revenues despite seasonally weak 4Q and competition from competing
properties such as World Cup. EBITDA margin ex sports improved 600bp yoy to
37% driven by estimated robust ad growth of 16% yoy & cost curtailment.
Balance sheet improvement continues; Buyback approved
With debt repaid during the quarter and net cash balance of Rs12.5bn, the
balance sheet remains healthy. The company also received shareholder approval
for share buyback at a price not exceeding Rs126 per equity share.
Impressive 4Q; Retain Buy
ZEEL reported an impressive quarter with significant reduction in sports losses
led by strong ad growth and a flattish growth in revenues (ex sports) QoQ despite
a seasonally weak 4Q.
While we think the stock could languish near term given recent outperformance to
broader markets, we retain our Buy rating given 1) our view that the demand
environment for ad spends remain robust, 2) likely continued momentum in
subscription revenues led by DTH and 3) lower losses in sports business in FY12
(Rs1bn vs. Rs2bn in FY11) as reflected in management guidance. Valuations at
16x FY13E remain attractive for 20% EPS CAGR (FY11-13E), in our view.
Sports business… sharp reduction in losses
One of the key highlights during the quarter was strong performance in the sports
division. Sports revenues (including ad & subscription) grew 130% yoy to
Rs1.4bn, leading to lower EBITDA losses during the quarter. While a turnaround
was anticipated, as in the 3rd quarter management had expensed half of the
telecast cost for India South Africa series with no commensurate revenues and
larger advertisement revenues from the series were to flow in the 4th quarter, the
turnaround is much sharper than expected.
Guides at lower sports losses for FY12
For FY11 losses from sports business stood at Rs2bn. Management has now
guided at loss of Rs800mn-1bn for FY12, in line with our view that FY12 would
see lower sports losses. We have factored in Sports losses of Rs1bn for FY12.
Ex Sports… impressive performance
We believe 4Q results also reflected the strength of the network. Ex sports
revenues grew by 34% yoy to Rs6.5bn and EBITDA margins improved from 31%
to 37%. We estimate ad revenues (ex sports) to have grown by ~16% yoy, as
against our expectation of 11% growth.
We believe the performance is impressive given 4Q is generally weak and the
network had to compete with the sports (World Cup cricket).
Balance sheet healthy
With debt repaid in its entirety during the quarter and a net cash balance of
Rs12.5bn, balance sheet remains healthy. The company also received
shareholder approval for share buyback at a price not exceeding Rs126/share.
Assuming the approved amount Rs7bn were to be utilized at Rs126, the company
would be effectively buying back 5.7% of equity.
Price objective basis & risk
Zee Entertainment (XZETF)
Our PO of Rs150 is set at 21x FY12E at a PEG of 0.9 (EPS CAGR FY11E-13E)
as against PEG of 1 earlier. We assumed derating given near term concerns to
ratings at its flagship channel from increasing competitive intensity. We believe
ZEEL remains a company with a long-term macro story offering an investment in
improving demographics, with defensive growth and valuations in line with the
Indian media sector average.
Downside risks: Slowdown in macro economy, increased programming cost due
to competition, higher funding to group companies, and loss of market share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Zee Entertainment
Impressive 4Q; positive
surprise from sports business
Retain Buy post strong 4Q
ZEEL reported an impressive quarter with significant reduction in sports losses
led by strong ad growth in sports and a flattish growth in revenues (ex sports)
QoQ despite a seasonally weak 4Q. While we think the stock could languish near
term given recent outperformance to broader markets, we retain our Buy rating,
given 1) our view that the demand environment for ad spends remains robust,
2) likely continued momentum in subscription revenues led by DTH, and 3) lower
losses in sports business in FY12E (Rs1bn vs. Rs2bn in FY11) as reflected in
management guidance. Valuations, at 16x FY13E, remain attractive for 20% EPS
CAGR (FY11-13E), in our view.
Sports business : Losses significantly lower than expected
4Q revenues grew 36% yoy, 23% ahead of BofAMLe driven by strong 130% yoy
growth in sports revenues. Consequently losses in sports business stood at
Rs150mn vs. Rs1bn in 3Q and significantly better than our expectation of
Rs600mn. Management now expects losses in FY12 to halve to Rs1bn, driven by
lower telecast right costs.
Ex sports: growth despite seasonally weak quarter
Performance in other segments (ex sports) was impressive, with flattish QoQ
growth in revenues despite seasonally weak 4Q and competition from competing
properties such as World Cup. EBITDA margin ex sports improved 600bp yoy to
37% driven by estimated robust ad growth of 16% yoy & cost curtailment.
Balance sheet improvement continues; Buyback approved
With debt repaid during the quarter and net cash balance of Rs12.5bn, the
balance sheet remains healthy. The company also received shareholder approval
for share buyback at a price not exceeding Rs126 per equity share.
Impressive 4Q; Retain Buy
ZEEL reported an impressive quarter with significant reduction in sports losses
led by strong ad growth and a flattish growth in revenues (ex sports) QoQ despite
a seasonally weak 4Q.
While we think the stock could languish near term given recent outperformance to
broader markets, we retain our Buy rating given 1) our view that the demand
environment for ad spends remain robust, 2) likely continued momentum in
subscription revenues led by DTH and 3) lower losses in sports business in FY12
(Rs1bn vs. Rs2bn in FY11) as reflected in management guidance. Valuations at
16x FY13E remain attractive for 20% EPS CAGR (FY11-13E), in our view.
Sports business… sharp reduction in losses
One of the key highlights during the quarter was strong performance in the sports
division. Sports revenues (including ad & subscription) grew 130% yoy to
Rs1.4bn, leading to lower EBITDA losses during the quarter. While a turnaround
was anticipated, as in the 3rd quarter management had expensed half of the
telecast cost for India South Africa series with no commensurate revenues and
larger advertisement revenues from the series were to flow in the 4th quarter, the
turnaround is much sharper than expected.
Guides at lower sports losses for FY12
For FY11 losses from sports business stood at Rs2bn. Management has now
guided at loss of Rs800mn-1bn for FY12, in line with our view that FY12 would
see lower sports losses. We have factored in Sports losses of Rs1bn for FY12.
Ex Sports… impressive performance
We believe 4Q results also reflected the strength of the network. Ex sports
revenues grew by 34% yoy to Rs6.5bn and EBITDA margins improved from 31%
to 37%. We estimate ad revenues (ex sports) to have grown by ~16% yoy, as
against our expectation of 11% growth.
We believe the performance is impressive given 4Q is generally weak and the
network had to compete with the sports (World Cup cricket).
Balance sheet healthy
With debt repaid in its entirety during the quarter and a net cash balance of
Rs12.5bn, balance sheet remains healthy. The company also received
shareholder approval for share buyback at a price not exceeding Rs126/share.
Assuming the approved amount Rs7bn were to be utilized at Rs126, the company
would be effectively buying back 5.7% of equity.
Price objective basis & risk
Zee Entertainment (XZETF)
Our PO of Rs150 is set at 21x FY12E at a PEG of 0.9 (EPS CAGR FY11E-13E)
as against PEG of 1 earlier. We assumed derating given near term concerns to
ratings at its flagship channel from increasing competitive intensity. We believe
ZEEL remains a company with a long-term macro story offering an investment in
improving demographics, with defensive growth and valuations in line with the
Indian media sector average.
Downside risks: Slowdown in macro economy, increased programming cost due
to competition, higher funding to group companies, and loss of market share.
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