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ZEEL reported Net Sales, EBITDA and PAT growth of 1%, 10% and 27%,
respectively, for Q2FY12. There was disappointment on top-line growth on
account of weak ad revenue, however, better cost management (lower
sports losses) led to in-line EBITDA. While the stock has corrected ~20%
from its recent peaks, we believe it is still early to get constructive on this
name, given a cautious TV ad growth outlook and intensified competition.
Retain Neutral with revised Mar’12 PT of Rs125.
Ad revenues - Weakness persists. Q2FY12 witnessed 4% y/y decline
in ad revenues, with sports division being the key driver for this
slowdown. Management stated that visibility remains low and remains
cautious near term on TV ad growth rates. Besides subdued industry
growth rates, competitive challenges remain stiff for Zee (slippages in
key Hindi GEC segment ratings) which further pose downside risk to
Zee’s ad revenues. We have reduced our ad growth assumption to 3%
for FY12 (-2% in 1HFY12).
Subscription revenue growth remains steady. We estimate domestic
subscription revenues grew ~20% y/y, while international revenues
declined 3% y/y. Faster pace of digitisation would be a key driver for
subscription revenues going forward.
Conference Call takeaways. 1) FY12 margins to be subdued on
account of higher programming costs and movie acquisition costs, 2)
Looking to increase the number of original programming hours on
flagship Zee channel to 32-33 hrs/week (from ~29 now), 3) FY12 sports
business losses to be contained within ~Rs1bn (Rs792mn losses in
1HFY12), and 4) Full-year FY12 tax rate to be ~30% (1HFY12 at 26%
owing to sports losses).
Earnings revisions. We have revised down our EPS for FY12E/13E by
4-5% as we moderate our ad growth rate assumptions. Our Mar’12 PT is
revised down to Rs125 on account of lower earnings and revised target
P/E multiple of 18x. We see improvement in ad growth rates, sustained
uptrend in viewership ratings and margin performance (in view of higher
costs and competitive environment) as key catalysts for a stock re-rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ZEEL reported Net Sales, EBITDA and PAT growth of 1%, 10% and 27%,
respectively, for Q2FY12. There was disappointment on top-line growth on
account of weak ad revenue, however, better cost management (lower
sports losses) led to in-line EBITDA. While the stock has corrected ~20%
from its recent peaks, we believe it is still early to get constructive on this
name, given a cautious TV ad growth outlook and intensified competition.
Retain Neutral with revised Mar’12 PT of Rs125.
Ad revenues - Weakness persists. Q2FY12 witnessed 4% y/y decline
in ad revenues, with sports division being the key driver for this
slowdown. Management stated that visibility remains low and remains
cautious near term on TV ad growth rates. Besides subdued industry
growth rates, competitive challenges remain stiff for Zee (slippages in
key Hindi GEC segment ratings) which further pose downside risk to
Zee’s ad revenues. We have reduced our ad growth assumption to 3%
for FY12 (-2% in 1HFY12).
Subscription revenue growth remains steady. We estimate domestic
subscription revenues grew ~20% y/y, while international revenues
declined 3% y/y. Faster pace of digitisation would be a key driver for
subscription revenues going forward.
Conference Call takeaways. 1) FY12 margins to be subdued on
account of higher programming costs and movie acquisition costs, 2)
Looking to increase the number of original programming hours on
flagship Zee channel to 32-33 hrs/week (from ~29 now), 3) FY12 sports
business losses to be contained within ~Rs1bn (Rs792mn losses in
1HFY12), and 4) Full-year FY12 tax rate to be ~30% (1HFY12 at 26%
owing to sports losses).
Earnings revisions. We have revised down our EPS for FY12E/13E by
4-5% as we moderate our ad growth rate assumptions. Our Mar’12 PT is
revised down to Rs125 on account of lower earnings and revised target
P/E multiple of 18x. We see improvement in ad growth rates, sustained
uptrend in viewership ratings and margin performance (in view of higher
costs and competitive environment) as key catalysts for a stock re-rating.
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