Rating: Hold; Target Price: Rs295; CMP: Rs284; Upside: 4%
Continues to surprise positively
We maintain Hold rating on ZEEL and believe all positives are factored
in the stock price. Non-sports margins could come under pressure on
the back of substantial investments in original content for new
channel launches along with pressure on subscription revenues in FY15
despite the company posting a healthy 20%+ non-sports ad growth in
Q3FY14. The absence of India cricket series in FY15 could help the
company reduce sports losses to Rs500mn in FY15 from Rs1450mn for
FY14. We believe the stock also factors in the issue of cumulative
redeemable non-convertible preference shares with an NPV of Rs15 set
for Q4FY14 along with the tax benefits from the acquisition of media
business of DMCL limiting further upside.
$ Q3FY14 results above expectations: ZEEL posted a healthy 26.6% YoY
growth in revenues on the back of 34.2%YoY growth in advertisement
revenues and 11.4% growth in subscription revenues (9.4% international
subscription growth). Renegotiation of DAS-1 contacts during the
quarter impacted domestic subscription revenues which were flat
sequentially. Operating profit was up 11.3% on the back of 39.6%
non-sports margins and Rs1041mn loss in the sports business. PAT was
up 10% YoY to Rs2,136mn due to healthy operating performance.
$ Another quarter of strong ad growth: Blockbuster movies such as
Chennai Express, the launch of &Pictures and Zee Anmol and strong
performance of Zee Tamil & Zee Telugu helped the company post healthy
~20%+ non-sports ad growth in the quarter despite implementing TRAI
10+2 rule. Sectors such as FMCG, telecom & services posted healthy
growth against Auto, retail and lifestyle sectors which were laggards.
Management expects ad growth to remain in mid-teens going forward
given the challenging macro environment but outperform the industry on
the back of new channel launches.
$ Non-sports margins to compress going forward: We believe non-sports
margins at 13-quarter high of 39.6% was on the back of strong ad
growth and new channels which did not have significant programming
cost. However with new channel launches slated for FY15, we expect the
company to invest significantly in original content which could
compress margins. But, with no India cricket in FY15, we expect sports
losses to reduce significantly from Q4FY14 and have modelled sports
losses of mere Rs500mn for FY15 against Rs1450mn for FY14.
$ Valuation & Risk: We marginally increase our ad growth assumptions
for FY14 coupled with higher operating margins. We maintain Hold
rating on the stock with a revised target price of Rs295 (25x Dec
2015) in-line with 5 years’ mean+1SD valuation. We have factored in
tax benefits from the acquisition of media business of DMCL along with
the issue of cumulative redeemable non-convertible preference shares
with an NPV of Rs15. Lower growth in subscription revenues on the back
of no India cricket in FY15 coupled with delay in digitization could
be a risk to our estimates while key upside could be further market
share gain across channels leading to increase in ad yields.
Thanks & Regards
--
��
Continues to surprise positively
We maintain Hold rating on ZEEL and believe all positives are factored
in the stock price. Non-sports margins could come under pressure on
the back of substantial investments in original content for new
channel launches along with pressure on subscription revenues in FY15
despite the company posting a healthy 20%+ non-sports ad growth in
Q3FY14. The absence of India cricket series in FY15 could help the
company reduce sports losses to Rs500mn in FY15 from Rs1450mn for
FY14. We believe the stock also factors in the issue of cumulative
redeemable non-convertible preference shares with an NPV of Rs15 set
for Q4FY14 along with the tax benefits from the acquisition of media
business of DMCL limiting further upside.
$ Q3FY14 results above expectations: ZEEL posted a healthy 26.6% YoY
growth in revenues on the back of 34.2%YoY growth in advertisement
revenues and 11.4% growth in subscription revenues (9.4% international
subscription growth). Renegotiation of DAS-1 contacts during the
quarter impacted domestic subscription revenues which were flat
sequentially. Operating profit was up 11.3% on the back of 39.6%
non-sports margins and Rs1041mn loss in the sports business. PAT was
up 10% YoY to Rs2,136mn due to healthy operating performance.
$ Another quarter of strong ad growth: Blockbuster movies such as
Chennai Express, the launch of &Pictures and Zee Anmol and strong
performance of Zee Tamil & Zee Telugu helped the company post healthy
~20%+ non-sports ad growth in the quarter despite implementing TRAI
10+2 rule. Sectors such as FMCG, telecom & services posted healthy
growth against Auto, retail and lifestyle sectors which were laggards.
Management expects ad growth to remain in mid-teens going forward
given the challenging macro environment but outperform the industry on
the back of new channel launches.
$ Non-sports margins to compress going forward: We believe non-sports
margins at 13-quarter high of 39.6% was on the back of strong ad
growth and new channels which did not have significant programming
cost. However with new channel launches slated for FY15, we expect the
company to invest significantly in original content which could
compress margins. But, with no India cricket in FY15, we expect sports
losses to reduce significantly from Q4FY14 and have modelled sports
losses of mere Rs500mn for FY15 against Rs1450mn for FY14.
$ Valuation & Risk: We marginally increase our ad growth assumptions
for FY14 coupled with higher operating margins. We maintain Hold
rating on the stock with a revised target price of Rs295 (25x Dec
2015) in-line with 5 years’ mean+1SD valuation. We have factored in
tax benefits from the acquisition of media business of DMCL along with
the issue of cumulative redeemable non-convertible preference shares
with an NPV of Rs15. Lower growth in subscription revenues on the back
of no India cricket in FY15 coupled with delay in digitization could
be a risk to our estimates while key upside could be further market
share gain across channels leading to increase in ad yields.
Thanks & Regards
--
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