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Zee Entertainment (ZEE.BO)
Hold: Weak 1QFY12 … Was it All Expected?
Revenues up 3% yoy; margins decline sharply — Revenues increased ~3% yoy to
~Rs7bn – ad revenues were flattish; subscription revenues were up ~17% yoy. EBITDA
margins declined ~530bps qoq / ~600bps yoy, due to sluggish ad revenues & higher
sports losses. Recurring PAT at Rs1.3bn was up 7% yoy but down 31% qoq.
Ad revenues sluggish; Rebound in 2H? — Management indicated some pullback in
ad spend by most advertisers – remain hopeful that onset of festive season some see
some normalcy in ad spends. We have highlighted moderating ad spends, esp. by
consumer companies (https://www.citigroupgeo.com/pdf/SAP45646.pdf ). We trim our
FY12 ad growth expectations to ~7% from ~13% earlier.
Subscription - DTH leads the way — DTH-related subscription (+56% yoy, 13% qoq
at Rs1.1bn) continues to drive subscription revenues (Rs3.1bn, up 17% yoy).
International subscription revenues continue to be challenged (down 3% yoy) and
analog cable subscription revenues were up ~8% yoy (but declined ~7% qoq).
EBITDA margins at 2 year lows — EBITDA margins (22.3%) were impacted by
advertising pullback and sports losses. Margins (ex sports) were down ~270bps –
sports losses increased as well. We expect EBITDA margins to recover given lower
sports losses, better ad spends & cost control by management going forward.
FY11 Net worth decline — As per ZEEL’s annual report, net worth end-FY11 was
~Rs31bn (Rs38bn end FY10) primarily due to corporate restructurings, which recently
got approvals. Net PPE (incl. goodwill) came down to ~Rs9.7bn. Standalone inventory
is up sharply; sports rights were transferred given the amalgamation of subsidiaries.
Reiterate Hold (2L) — The stock has been struggling (down ~19% in the past year –
underperforming the market by 22%) with elevated valuations and modest business
outlook. The poor Q1 results were already factored in (partially) – difficult to be
constructive, given the outlook. Buyback is a near-term support – relative positioning in
the sector should help (Sun TV facing challenges & Dish TV’s stock run up). We trim
our FY12-13 EPS est. by 4-5% and lower our target price to Rs138.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Zee Entertainment (ZEE.BO)
Hold: Weak 1QFY12 … Was it All Expected?
Revenues up 3% yoy; margins decline sharply — Revenues increased ~3% yoy to
~Rs7bn – ad revenues were flattish; subscription revenues were up ~17% yoy. EBITDA
margins declined ~530bps qoq / ~600bps yoy, due to sluggish ad revenues & higher
sports losses. Recurring PAT at Rs1.3bn was up 7% yoy but down 31% qoq.
Ad revenues sluggish; Rebound in 2H? — Management indicated some pullback in
ad spend by most advertisers – remain hopeful that onset of festive season some see
some normalcy in ad spends. We have highlighted moderating ad spends, esp. by
consumer companies (https://www.citigroupgeo.com/pdf/SAP45646.pdf ). We trim our
FY12 ad growth expectations to ~7% from ~13% earlier.
Subscription - DTH leads the way — DTH-related subscription (+56% yoy, 13% qoq
at Rs1.1bn) continues to drive subscription revenues (Rs3.1bn, up 17% yoy).
International subscription revenues continue to be challenged (down 3% yoy) and
analog cable subscription revenues were up ~8% yoy (but declined ~7% qoq).
EBITDA margins at 2 year lows — EBITDA margins (22.3%) were impacted by
advertising pullback and sports losses. Margins (ex sports) were down ~270bps –
sports losses increased as well. We expect EBITDA margins to recover given lower
sports losses, better ad spends & cost control by management going forward.
FY11 Net worth decline — As per ZEEL’s annual report, net worth end-FY11 was
~Rs31bn (Rs38bn end FY10) primarily due to corporate restructurings, which recently
got approvals. Net PPE (incl. goodwill) came down to ~Rs9.7bn. Standalone inventory
is up sharply; sports rights were transferred given the amalgamation of subsidiaries.
Reiterate Hold (2L) — The stock has been struggling (down ~19% in the past year –
underperforming the market by 22%) with elevated valuations and modest business
outlook. The poor Q1 results were already factored in (partially) – difficult to be
constructive, given the outlook. Buyback is a near-term support – relative positioning in
the sector should help (Sun TV facing challenges & Dish TV’s stock run up). We trim
our FY12-13 EPS est. by 4-5% and lower our target price to Rs138.
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