Advertising revenue bounces back Zee Entertainment Enterprises ::centrum

Advertising revenue bounces back
Zee Entertainment Enterprises reported strong Q1FY13 results on the back of
18% YoY ad revenue growth and 19% YoY subscription revenue (23%
domestic and 16% international) growth. Continued investment in content
has helped the company gain substantial market share across channels.
Lower losses in sports and healthy topline growth have helped margin
expansion, while high tax rate muted profitability. Maintain Neutral rating on
the stock.
Results better than expectations: ZEEL posted 20.7% YoY increase in net
sales to Rs8430mn backed by strong advertising revenue growth of 18% to
Rs4472mn. Subscription revenues were up 19.3% led by domestic revenues.
Operating profit was up by 49.5% to Rs2333mn led by 533bps margin
expansion. PAT was in-line with our expectations at Rs1582mn, up 18.3% YoY.

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Strong advertisement growth: ZEEL posted 18% YoY growth in
advertisement revenues on the back of strong market share gain across
channels. Sectors such as telecom, auto and banking remain laggards in terms
of advertising while FMCG and consumer goods continue to increase their
spending in television. Flagship channel Zee TV has become No.2 channel and
commands a market share of 21.2% with average GRP of 215. In prime time
the channel had 23% market share and has 23 shows among top 100. The
company is investing in programming and launches new shows not only on
weekdays but also on weekends which has led to rating improvement.
Management expects to increase the original programming hours to 32 by the
year end. In Zee Bangla, Zee Marathi and Zee Telugu the company has a
market of 31%, 28% and 20% respectively. We have modeled 9% ad growth
for FY13E.
Margin expansion to sustain: The company posted a strong 533bps margin
expansion to 27.7% during the quarter on the back of 34.2% non-sports
margins. Though the company is expected to invest in new content we
believe these margins would sustain considering the strong market share gain
across the bouquet of channels. During the quarter, the company posted
Rs210mn loss in sports business with a topline of Rs992mn. We expect the
losses in the sports business to be below ~Rs1bn for FY13 considering the low
number of India cricket matches during the year.
Maintain BUY: The stock currently trades at 21.3x and 18.5x FY13E and FY14E
PE. We have marginally increased our estimates for FY13 and FY14 by 7.9%
and 5.7% respectively on the back of higher advertising revenues and margin
expansion. We value the stock at 20x FY14E PE and arrive at a target price of
Rs162 (previous target price 146) and maintain our Neutral rating on the stock.