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Zee Entertainment
Bracing for a cold winter
Event
Post 2Q results we now expect FY12 to be a tepid year for ad revenues (now
expecting 2% vs. 6% earlier). We expect this to be mitigated at the EPS level
by aggressive cost cuts and a cap on Sports losses. We remain cautious with
a TP of Rs110.
Impact
Conference call takeaways:
Ad environment remains volatile and it’s difficult to provide a trend vs.
earlier indication of high single digit growth in FY12.
Increasing the number of fresh hours of programming to 32-33 per week
from 29 earlier on Zee TV. This would keep margins lower vs. FY11.
Tax rates for the year to remain at ~31% as Sports segment losses in 1H
have depressed the reported tax rate.
Ad revenue estimate cut further. We have been cautious on the ad growth
outlook for Zee and now expect the FY12 growth rate to remain muted at 2%.
We recognise that our revised assumptions still build in ~5% YoY growth for
the company in each of the last two quarters.
GEC programming costs to pick up but sports losses being capped. The
only positive surprise in the quarter was on programming costs at 45% of
revenues vs. our est. of 48.5%. Zee realises that its GEC channel rankings
have taken a beating and plans to invest in programming to win share back
from peers. Even so, we have reduced our overall programming cost estimate
since sports losses are likely to be capped at Rs1bn.
Accounting policy change due to Media Pro. Zee has started reporting
domestic subscription revenues net of expenses. This also has helped the
company to post a 630bps jump in its margins. We learnt from the
management that earlier financials for the subsidiary Zee Turner were
consolidated line-by-line but given the distribution JV formation with Star this
is no longer valid.
Earnings and target price revision
Updating the model for 2Q results. No TP change.
Price catalyst
12-month price target: Rs110.00 based on a DCF methodology.
Catalyst: Revival in viewership ratings for key channels
Action and recommendation
Stay on the sidelines. We expect the stock to remain range bound as the
buyback provides downside support but slowing ad growth would cap any
material stock price appreciation. We prefer Dish TV in the space.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Zee Entertainment
Bracing for a cold winter
Event
Post 2Q results we now expect FY12 to be a tepid year for ad revenues (now
expecting 2% vs. 6% earlier). We expect this to be mitigated at the EPS level
by aggressive cost cuts and a cap on Sports losses. We remain cautious with
a TP of Rs110.
Impact
Conference call takeaways:
Ad environment remains volatile and it’s difficult to provide a trend vs.
earlier indication of high single digit growth in FY12.
Increasing the number of fresh hours of programming to 32-33 per week
from 29 earlier on Zee TV. This would keep margins lower vs. FY11.
Tax rates for the year to remain at ~31% as Sports segment losses in 1H
have depressed the reported tax rate.
Ad revenue estimate cut further. We have been cautious on the ad growth
outlook for Zee and now expect the FY12 growth rate to remain muted at 2%.
We recognise that our revised assumptions still build in ~5% YoY growth for
the company in each of the last two quarters.
GEC programming costs to pick up but sports losses being capped. The
only positive surprise in the quarter was on programming costs at 45% of
revenues vs. our est. of 48.5%. Zee realises that its GEC channel rankings
have taken a beating and plans to invest in programming to win share back
from peers. Even so, we have reduced our overall programming cost estimate
since sports losses are likely to be capped at Rs1bn.
Accounting policy change due to Media Pro. Zee has started reporting
domestic subscription revenues net of expenses. This also has helped the
company to post a 630bps jump in its margins. We learnt from the
management that earlier financials for the subsidiary Zee Turner were
consolidated line-by-line but given the distribution JV formation with Star this
is no longer valid.
Earnings and target price revision
Updating the model for 2Q results. No TP change.
Price catalyst
12-month price target: Rs110.00 based on a DCF methodology.
Catalyst: Revival in viewership ratings for key channels
Action and recommendation
Stay on the sidelines. We expect the stock to remain range bound as the
buyback provides downside support but slowing ad growth would cap any
material stock price appreciation. We prefer Dish TV in the space.
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