Edelweiss :: Buy Zee Entertainment Enterprises - Likely to recapture eyeballs

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Zee Entertainment Enterprises (Z IN, INR 114, Buy)

Zee Entertainment Enterprises’ (ZEE) flagship channel Zee TV’s ratings are likely to rise from the doldrums with Sony’s mega show Kaun Banega Crorepati (KBC) going off air this week. Also, on the anvil are two more shows (including Dance India Dance) in H2FY12 and increase in the number of original programming hours from 28 to ~32 by FY12 end. The company has already soft launched four HD channels, a positive from the ARPU perspective. Overall, we remain positive on ZEE’s subscription revenue from a long-term perspective. Maintain ‘BUY’.

KBC ending a positive; ratings likely to rise from hereon

After garnering 228 GRPs and becoming a close No. 3 player in June 2011, viewership of ZEE’s flagship channel Zee TV has nosedived, languishing at a poor No.4 spot. This has been primarily due to tremendous success of Sony’s KBC, which has consistently garnered GRPs of ~40-45. However, with the current week (Week 47) being KBC’s last on air, ZEE’s ratings are likely to have bottomed out in our view.

Two more shows on cards; sports losses to be sharply lower

ZEE has already launched two new shows Star Ya Rockstar and Hitler Didi and will launch Afsar Bitiya and Dance India Dance (DID) in H2FY12.  DID will be critical forZee TV as it had garnered excellent GRPs (~25-30) in the past.  In our view, ZEE will have to change its cost-focused strategy and maintain a healthy balance of movies and fiction shows. Sports EBITDA loss in H2FY12 is likely to be ~INR220mn versus a loss of INR792mn in H1FY12, which will cushion margin pressure.

Outlook and valuations: Improving; maintain ‘BUY’

We remain positive on ZEE from a long term perspective as we expect subscription revenue to get a boost from the digitization mandate and the distribution JV with Star. At CMP of INR114, the stock is trading at P/E of 17.8x and 14.9x on FY12E and FY13E, respectively. We maintain ‘BUY’ recommendation and ‘Sector Outperformer’ rating.