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EARNINGS REVIEW
Zee Entertainment Enterprises (ZEE.BO)
Neutral Equity Research
Above expectations on lower sports loss, but weak outlook; Neutral
What surprised us
Zee reported 2QFY12 revenues/EBITDA and net profit that were -1.0%/
+4.6%/+15.7% vs. GS (and -1.7%/-8.0%/+12.8% vs. Bloomberg consensus)
estimates. Net profit beat was mainly due to lower losses from the sports
business and tighter cost controls. Key positives: 1) Despite a weaker
growth environment, ad-revenues in 2Q grew 4.3% qoq and were 2.2%
ahead of our est. 2) EBITDA margins for the quarter improved 6.5ppt to
28.9% (GSe: 27.3%) led by lower sports losses as cost of sales declined
5.8% qoq and was 1.3% below our estimates. 3) Mgmt is planning to
increase the programming duration to 32-33 hours/week (by year-end)
from 28-29 hours currently and expects it to arrest the declining
viewership share of the flagship channel Zee TV. Key negatives: 1) Adspend
in the run-up to the festive “Diwali” season has been weaker than
normal and mgmt expects ad-revenue growth to remain tepid in FY12. 2)
Mgmt expects pressure on EBITDA margin for FY12, led by higher content
cost. 3) Tax rate for the quarter was 27% (1H: 26%), while mgmt guided a
full year tax rate of c.31%, implying a higher tax rate of 34% for the 2H.
What to do with the stock
We reduce our FY12E/13E/14E revenue estimates by 1.3%/1.2%/1.2% to
account for the weaker ad-spend outlook. However, our EPS estimates
increase by 14.3%/3.1%/1.5% as we factor-in lower sports losses and
slightly better margins. We roll-forward our TP by 3m and our 12m DCFbased
target price remains unchanged at Rs125. At FY12E P/E and
EV/EBITDA of 18.6X/12.8X, Zee appears fairly valued to us in the context of
a weaker growth outlook and we remain Neutral on the stock. Upside risk:
Sharp recovery in ad-spend. Downside risk: Slower DTH uptake.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Zee Entertainment Enterprises (ZEE.BO)
Neutral Equity Research
Above expectations on lower sports loss, but weak outlook; Neutral
What surprised us
Zee reported 2QFY12 revenues/EBITDA and net profit that were -1.0%/
+4.6%/+15.7% vs. GS (and -1.7%/-8.0%/+12.8% vs. Bloomberg consensus)
estimates. Net profit beat was mainly due to lower losses from the sports
business and tighter cost controls. Key positives: 1) Despite a weaker
growth environment, ad-revenues in 2Q grew 4.3% qoq and were 2.2%
ahead of our est. 2) EBITDA margins for the quarter improved 6.5ppt to
28.9% (GSe: 27.3%) led by lower sports losses as cost of sales declined
5.8% qoq and was 1.3% below our estimates. 3) Mgmt is planning to
increase the programming duration to 32-33 hours/week (by year-end)
from 28-29 hours currently and expects it to arrest the declining
viewership share of the flagship channel Zee TV. Key negatives: 1) Adspend
in the run-up to the festive “Diwali” season has been weaker than
normal and mgmt expects ad-revenue growth to remain tepid in FY12. 2)
Mgmt expects pressure on EBITDA margin for FY12, led by higher content
cost. 3) Tax rate for the quarter was 27% (1H: 26%), while mgmt guided a
full year tax rate of c.31%, implying a higher tax rate of 34% for the 2H.
What to do with the stock
We reduce our FY12E/13E/14E revenue estimates by 1.3%/1.2%/1.2% to
account for the weaker ad-spend outlook. However, our EPS estimates
increase by 14.3%/3.1%/1.5% as we factor-in lower sports losses and
slightly better margins. We roll-forward our TP by 3m and our 12m DCFbased
target price remains unchanged at Rs125. At FY12E P/E and
EV/EBITDA of 18.6X/12.8X, Zee appears fairly valued to us in the context of
a weaker growth outlook and we remain Neutral on the stock. Upside risk:
Sharp recovery in ad-spend. Downside risk: Slower DTH uptake.
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