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Meeting takeaways
ƒ We met Mr Atul Das, head of corporate strategy at Zee
ƒ Ad revenue growth slowing; sports losses to decline to half
ƒ Star-Zee JV a strategic initiative; contribution to take 3 quarters
ƒ Retain BUY; raise TP by 5% to INR150, in line with EPS increase
Zee-Star joint venture
Zee Turner and Star Den have formed a
50:50 joint venture for the distribution of
channels. The JV will try to improve the
realization for content provided by both
the broadcasters. The new entity will
distribute 75 channels accounting for 40%
of television viewership in India, and will
look to improve realization by: 1) reducing
under-declaration by cable operators and
thus plugging revenue leakage; and
2) increasing the total realization from pay
TV subscribers. Initial priority will be to
reduce under-declaration. The company expects the financial impact of
the JV to be visible only after around three quarters. Currently, the cable
industry with 75m subscribers contributes a similar amount of revenue to
broadcasters as does the DTH industry, which has only 30m subscribers.
The JV will seek to correct this situation.
Sports rights renewal; prices likely to be more rational
Zee expects sports losses to decline from INR2b in FY11 to INR1b in
FY12 and targets break-even in FY13. The company has said it will aim at
renewing the current rights as well as buying new sports rights, but will
be rational about the price it pays. In 1QFY12, the company aired the
India-West Indies cricket series, but the viewership was low due to cricket
fatigue and non-prime-time hours broadcast.
Advertisement revenue: near-term slowdown
Zee is seeing some impact from the general economic slowdown on
advertisement spends. Also, advertisers have already spent significant
amounts on the cricket world cup and the IPL series, which is also
impacting the current spending. Zee has added programming hours, but
is doing some rebalancing to manage its programming costs.
Retain BUY; raise TP to INR150
We retain our BUY rating on Zee Entertainment and increase our TP
from INR143 to INR150, due to a 4% increase in our FY12 EPS estimate.
The higher EPS estimate reflects our higher EBITDA margin estimate for
FY12 on the back of the strong 4QFY11. We continue to value Zee at
22x FY12E EPS. We like Zee as we believe that it is well positioned to
benefit from rising digitization and that its network strength positions it
well for continued advertisement revenue growth. Risks to our TP: delay
in digitisation of cable, higher-than-expected sports losses, and a drop in
TV ratings due to increasing competition.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Meeting takeaways
ƒ We met Mr Atul Das, head of corporate strategy at Zee
ƒ Ad revenue growth slowing; sports losses to decline to half
ƒ Star-Zee JV a strategic initiative; contribution to take 3 quarters
ƒ Retain BUY; raise TP by 5% to INR150, in line with EPS increase
Zee-Star joint venture
Zee Turner and Star Den have formed a
50:50 joint venture for the distribution of
channels. The JV will try to improve the
realization for content provided by both
the broadcasters. The new entity will
distribute 75 channels accounting for 40%
of television viewership in India, and will
look to improve realization by: 1) reducing
under-declaration by cable operators and
thus plugging revenue leakage; and
2) increasing the total realization from pay
TV subscribers. Initial priority will be to
reduce under-declaration. The company expects the financial impact of
the JV to be visible only after around three quarters. Currently, the cable
industry with 75m subscribers contributes a similar amount of revenue to
broadcasters as does the DTH industry, which has only 30m subscribers.
The JV will seek to correct this situation.
Sports rights renewal; prices likely to be more rational
Zee expects sports losses to decline from INR2b in FY11 to INR1b in
FY12 and targets break-even in FY13. The company has said it will aim at
renewing the current rights as well as buying new sports rights, but will
be rational about the price it pays. In 1QFY12, the company aired the
India-West Indies cricket series, but the viewership was low due to cricket
fatigue and non-prime-time hours broadcast.
Advertisement revenue: near-term slowdown
Zee is seeing some impact from the general economic slowdown on
advertisement spends. Also, advertisers have already spent significant
amounts on the cricket world cup and the IPL series, which is also
impacting the current spending. Zee has added programming hours, but
is doing some rebalancing to manage its programming costs.
Retain BUY; raise TP to INR150
We retain our BUY rating on Zee Entertainment and increase our TP
from INR143 to INR150, due to a 4% increase in our FY12 EPS estimate.
The higher EPS estimate reflects our higher EBITDA margin estimate for
FY12 on the back of the strong 4QFY11. We continue to value Zee at
22x FY12E EPS. We like Zee as we believe that it is well positioned to
benefit from rising digitization and that its network strength positions it
well for continued advertisement revenue growth. Risks to our TP: delay
in digitisation of cable, higher-than-expected sports losses, and a drop in
TV ratings due to increasing competition.
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