Zee TV is back at the No. 1 GEC position pipping Star Plus, as per latest viewership data. ZEE’s investment in content seems to be reaping dividends as both its fiction and non-fiction shows are doing well. Though investments in the Middle East, Russia, and Indonesia could impact overall FY13 margins, they are expected to be profitable over the longer term. Ad revenue growth is likely to remain robust in Q2FY13, ahead of industry, albeit on a lower base, aided by strong viewership and specific issue with competition (HUL versus STAR India). Maintain ‘BUY’.
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Content focus pays dividend, propels Zee TV to No.1 slot
Zee TV has again jumped to the No. 1 GEC slot by garnering 251 GRPs against Star Plus’ 250 GRPs as per TAM. While Sony is a strong No. 3 at 244 GRPs, Colors dropped to No. 4 with 229 GRPs. Sony’s flagship show Kaun Banega Crorepati (KBC), which was launched last week, has opened strongly at an impressive 6.1 TVR. We expect Zee TV’s latest ranking to come under pressure going forward due to expected aggression from Star Plus and good performance of KBC. ZEE is likely to benefit marginally due to HUL pulling out ads on STAR India channels for the past one month.
Overseas investments to open up additional revenue streams
As per media reports, ZEE is likely to invest USD100mn in its new Arabic channel Zee Alwan. However, we believe that the actual investment will be much lower than USD100mn. Along with new initiatives in the Middle East, the company has been investing in Russia and Indonesia, albeit on a smaller scale. These overseas investments along with Tamil GEC and Ditto TV may dent overall FY13 margins, but are likely to increase international subscription revenue and develop new revenue streams.
Outlook and valuations: Positive; maintain ‘BUY’
Sturdy free cash flow generation, ~INR11bn net cash, minimal debt, and increasing payout are key positives. At CMP of INR169, the stock is trading at P/E of 24.3x and 20.7x FY13E and FY14E earnings, respectively. Maintain ‘BUY/Sector Outperformer’.
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