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Zee Entertainment Enterprises (Z)
Media
Strong 2QFY12 also raises questions on long-term strategy. Zee reported strong
2QFY12 EBITDA of Rs2.08 bn (+10% yoy), ahead of estimates, led by (1) reduced sports
losses and (2) robust entertainment business margins. However, the strong performance
also raises questions on long-term strategy; weak ratings (~Rs150 GRPs) in flagship Zee
TV channel should not be underestimated. Zee has multiple drivers (1) favorable Indian
market advertising growth, (2) DTH growth, (3) digitization ordinance, (4) Media Pro
(Zee-Star distribution JV), (5) robust cash position and (6) diversification (25 channels).
Nonetheless, Zee has been quite conservative with its content and expansion strategy.
Retain BUY; upcoming content revamp in Zee TV takes center stage now.
Strong 2QFY12 results: gains across sports and core entertainment businesses
Zee reported strong 2QFY12 EBITDA of Rs2.08 bn (+10% yoy,), ahead of our expectations, led
by a combination of (1) reduced sports operating losses of Rs226 mn (-58% yoy; the company
seems to have a better handle on sports business now) and (2) robust entertainment business
operating profit of Rs2.22 bn (-6% yoy) in a challenging environment.
However, we also note that 2QFY12 financials are not strictly comparable to prior quarters
because of the change in accounting treatment of domestic subscription revenues, which are
now being reported net of expenses, due to the formation Media Pro (Zee-Star JV). We
highlight the potential changes to financials from above, wherever possible.
However, weak ratings in flagship Zee TV channel should not be underestimated
Zee TV is the flagship channel of the Zee network contributing 30-35% share in advertising
(though down from 50-55% prior to acquisition of R-GEC channels). Therefore, the impact of Zee
TV’s weak ratings cannot be underestimated (on the network as well); Exhibits 4-6 present the
performance of Zee TV across various viewership metrics; Zee TV viewership has declined 25-30%
from year-ago levels. The upcoming content slate revamp takes center stage, in this light.
However, the surprise has been Zee’s conservative content and expansion strategy (lower hours of
original content on flagship) versus Sony and upstart Colors.
Retain BUY; not lacking positive drivers but robust ratings key for them to play out
We leave our rating (BUY), FY2013E TP (Rs160) and earnings estimates unchanged given structural
drivers: (1) favorable Indian market advertising growth dynamics (based on our discussions with
media buyers), (2) strong growth in DTH, (3) digitization ordinance (subscription revenues and
placement costs), (4) Media Pro (Zee-Star distribution JV), (5) robust financial position (Rs11.1 bn
cash post Rs2.3 bn dividend payout and Rs1.6 bn share buyback) and (6) strong performance of
regional channels (Bengali/Kannada negate weakness in Marathi). However, they demand a robust
Tier-I GEC (Zee TV is flirting with levels of Tier-II SAB TV channel) to play out; bargaining power for
subscription revenues is function of the flagship channel as well as network.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Zee Entertainment Enterprises (Z)
Media
Strong 2QFY12 also raises questions on long-term strategy. Zee reported strong
2QFY12 EBITDA of Rs2.08 bn (+10% yoy), ahead of estimates, led by (1) reduced sports
losses and (2) robust entertainment business margins. However, the strong performance
also raises questions on long-term strategy; weak ratings (~Rs150 GRPs) in flagship Zee
TV channel should not be underestimated. Zee has multiple drivers (1) favorable Indian
market advertising growth, (2) DTH growth, (3) digitization ordinance, (4) Media Pro
(Zee-Star distribution JV), (5) robust cash position and (6) diversification (25 channels).
Nonetheless, Zee has been quite conservative with its content and expansion strategy.
Retain BUY; upcoming content revamp in Zee TV takes center stage now.
Strong 2QFY12 results: gains across sports and core entertainment businesses
Zee reported strong 2QFY12 EBITDA of Rs2.08 bn (+10% yoy,), ahead of our expectations, led
by a combination of (1) reduced sports operating losses of Rs226 mn (-58% yoy; the company
seems to have a better handle on sports business now) and (2) robust entertainment business
operating profit of Rs2.22 bn (-6% yoy) in a challenging environment.
However, we also note that 2QFY12 financials are not strictly comparable to prior quarters
because of the change in accounting treatment of domestic subscription revenues, which are
now being reported net of expenses, due to the formation Media Pro (Zee-Star JV). We
highlight the potential changes to financials from above, wherever possible.
However, weak ratings in flagship Zee TV channel should not be underestimated
Zee TV is the flagship channel of the Zee network contributing 30-35% share in advertising
(though down from 50-55% prior to acquisition of R-GEC channels). Therefore, the impact of Zee
TV’s weak ratings cannot be underestimated (on the network as well); Exhibits 4-6 present the
performance of Zee TV across various viewership metrics; Zee TV viewership has declined 25-30%
from year-ago levels. The upcoming content slate revamp takes center stage, in this light.
However, the surprise has been Zee’s conservative content and expansion strategy (lower hours of
original content on flagship) versus Sony and upstart Colors.
Retain BUY; not lacking positive drivers but robust ratings key for them to play out
We leave our rating (BUY), FY2013E TP (Rs160) and earnings estimates unchanged given structural
drivers: (1) favorable Indian market advertising growth dynamics (based on our discussions with
media buyers), (2) strong growth in DTH, (3) digitization ordinance (subscription revenues and
placement costs), (4) Media Pro (Zee-Star distribution JV), (5) robust financial position (Rs11.1 bn
cash post Rs2.3 bn dividend payout and Rs1.6 bn share buyback) and (6) strong performance of
regional channels (Bengali/Kannada negate weakness in Marathi). However, they demand a robust
Tier-I GEC (Zee TV is flirting with levels of Tier-II SAB TV channel) to play out; bargaining power for
subscription revenues is function of the flagship channel as well as network.
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