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Higher sports losses, core margin decline to impact earnings
Cutting FY12-14 earnings estimates by 3-5%; maintain Neutral
We are cutting our earnings estimates for Zee by 3-5% as we assume higher sports
loss and slightly lower ad revenue/ex-sports EBITDA margin.
Sports losses in FY12 are expected to be higher at INR1.3b v/s earlier guidance of
INR1b.
Ad revenue growth is expected to remain soft given continued weakness in macro
environment and residual impact of loss in market share during 3QFY12
We expect pressure on core margins (ex-sports) which are likely to decline by ~420bp
to 34.3% during FY12 leading to a 9% YoY decline in EBITDA (ex-sports)
The stock trades at 21.1x FY12E EPS of INR5.8 and 19.1x FY13E E
PS of INR6.4. Maintain
Neutral with a target price of INR110 (15x FY14E EPS)
Higher sports losses in FY12 expected; core margins likely to remain
under pressure till 1HFY13
Zee's sports business incurred a loss of INR890m during 9MFY12 (v/s management
guidance of INR1b for FY12). We expect the sports business' losses for the full
year (FY12) to be higher due to investments in newly launched Golf and HD
channels. We now model sports business losses of INR1.3b/0.8b/0.6b in FY12/
13/14. Core margins (ex-sports) have declined significantly from peak level of
41% in 2QFY11 to 34% in 3QFY12. We expect core margin to remain under
pressure till 1HFY13.
Ad revenue to decline 9% in FY12; expect bounce-back in FY13
During 4QFY12, Zee's flagship channel recorded 22% QoQ improvement in GRP
to 192 (v/s 158 in 3QFY12). Zee TV's relative market share has also increased
from 12.4% in 3QFY12 to 16% in 4QFY12, reducing the gap between the top four
Hindi GECs. Despite the ratings improvement and higher relative market share,
we expect ad revenue in the near-term to remain under pressure with
improvement likely to be visible only from 1QFY13. Revenue growth is expected
to happen with a lag due to full impact of weak ratings in 3QFY12 and continued
weakness in advertising markets. We estimate 9% YoY ad revenue decline in
FY12 and have modeled in 11-12% YoY growth in FY13/14 led by expected market
share gain, along with some improvement in macro environment.
Domestic subscription revenue CAGR of 13.5%; CCI examination on
Media Pro a concern
We expect domestic subscription CAGR of 13.5% YoY over FY12-14 driven by (1)
Media Pro (Distribution JV with Star Den), and (2) increased revenue from
digitization (19% CAGR over FY12-14E). However, there are fresh concerns on
the domestic subscription business post recent statement by the Competition
Commission on the ongoing probe of the Star Den-Zee Turner merger.
TRAI's consultation on advertising likely to be overhang on broadcasters
TRAI has issued a consultation paper on TV advertising aimed at regulating the
duration and time-gap in case of full-screen advertisements and space occupied in
case of on-screen tickers and advertisements during telecast of news/sports events.
Key stipulations in the consultation paper include: (1) prescribed limits for duration
of advertisements to be regulated on clock-hour basis (v/s average for the day), (2)
ad duration for pay channels to be limited to 6 minutes/hour, (3) at least 12 minutes
of break-free programming for normal programs and 30 minutes for movies, (4)
advertisements only during lunch/drinks breaks during cricket matches, and (5) not
more than 10% of the screen space to be occupied by non-commercial tickers/scrolls
in news and current affairs programming. The consultation process is likely to be an
overhang on all broadcasting stocks including Zee.
Cutting FY12-14 earnings estimate by 3-5%; maintain Neutral rating with
target price of INR110
We are cutting our FY12/13/14 earnings estimates by 4/5/3% on account of higherthan-
guided sports losses and pressure on core margins. We expect EPS growth of
10% in FY13 and 14% in FY14. The stock trades at 21.1x FY12E EPS of INR5.8 and 19.1x
FY13E EPS of INR6.4. Maintain Neutral with a target price of INR110 (15x FY14E EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Higher sports losses, core margin decline to impact earnings
Cutting FY12-14 earnings estimates by 3-5%; maintain Neutral
We are cutting our earnings estimates for Zee by 3-5% as we assume higher sports
loss and slightly lower ad revenue/ex-sports EBITDA margin.
Sports losses in FY12 are expected to be higher at INR1.3b v/s earlier guidance of
INR1b.
Ad revenue growth is expected to remain soft given continued weakness in macro
environment and residual impact of loss in market share during 3QFY12
We expect pressure on core margins (ex-sports) which are likely to decline by ~420bp
to 34.3% during FY12 leading to a 9% YoY decline in EBITDA (ex-sports)
The stock trades at 21.1x FY12E EPS of INR5.8 and 19.1x FY13E E
PS of INR6.4. Maintain
Neutral with a target price of INR110 (15x FY14E EPS)
Higher sports losses in FY12 expected; core margins likely to remain
under pressure till 1HFY13
Zee's sports business incurred a loss of INR890m during 9MFY12 (v/s management
guidance of INR1b for FY12). We expect the sports business' losses for the full
year (FY12) to be higher due to investments in newly launched Golf and HD
channels. We now model sports business losses of INR1.3b/0.8b/0.6b in FY12/
13/14. Core margins (ex-sports) have declined significantly from peak level of
41% in 2QFY11 to 34% in 3QFY12. We expect core margin to remain under
pressure till 1HFY13.
Ad revenue to decline 9% in FY12; expect bounce-back in FY13
During 4QFY12, Zee's flagship channel recorded 22% QoQ improvement in GRP
to 192 (v/s 158 in 3QFY12). Zee TV's relative market share has also increased
from 12.4% in 3QFY12 to 16% in 4QFY12, reducing the gap between the top four
Hindi GECs. Despite the ratings improvement and higher relative market share,
we expect ad revenue in the near-term to remain under pressure with
improvement likely to be visible only from 1QFY13. Revenue growth is expected
to happen with a lag due to full impact of weak ratings in 3QFY12 and continued
weakness in advertising markets. We estimate 9% YoY ad revenue decline in
FY12 and have modeled in 11-12% YoY growth in FY13/14 led by expected market
share gain, along with some improvement in macro environment.
Domestic subscription revenue CAGR of 13.5%; CCI examination on
Media Pro a concern
We expect domestic subscription CAGR of 13.5% YoY over FY12-14 driven by (1)
Media Pro (Distribution JV with Star Den), and (2) increased revenue from
digitization (19% CAGR over FY12-14E). However, there are fresh concerns on
the domestic subscription business post recent statement by the Competition
Commission on the ongoing probe of the Star Den-Zee Turner merger.
TRAI's consultation on advertising likely to be overhang on broadcasters
TRAI has issued a consultation paper on TV advertising aimed at regulating the
duration and time-gap in case of full-screen advertisements and space occupied in
case of on-screen tickers and advertisements during telecast of news/sports events.
Key stipulations in the consultation paper include: (1) prescribed limits for duration
of advertisements to be regulated on clock-hour basis (v/s average for the day), (2)
ad duration for pay channels to be limited to 6 minutes/hour, (3) at least 12 minutes
of break-free programming for normal programs and 30 minutes for movies, (4)
advertisements only during lunch/drinks breaks during cricket matches, and (5) not
more than 10% of the screen space to be occupied by non-commercial tickers/scrolls
in news and current affairs programming. The consultation process is likely to be an
overhang on all broadcasting stocks including Zee.
Cutting FY12-14 earnings estimate by 3-5%; maintain Neutral rating with
target price of INR110
We are cutting our FY12/13/14 earnings estimates by 4/5/3% on account of higherthan-
guided sports losses and pressure on core margins. We expect EPS growth of
10% in FY13 and 14% in FY14. The stock trades at 21.1x FY12E EPS of INR5.8 and 19.1x
FY13E EPS of INR6.4. Maintain Neutral with a target price of INR110 (15x FY14E EPS).
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