Margins set to remain subdued… • Zee :: ICICI Securities

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Margins set to remain subdued… • Zee’s revenue growth of 14.8% YoY was led by exceptional growth
in other operating income that came in at | 175.0 crore vs. | 47.6
crore in Q3FY14. Advertisement revenues grew 8.5% YoY to | 742.6
crore vs. our expectations of 11.8% YoY growth. The company
posted subscription revenues of | 446.2 crore (the subscription
revenue numbers are not comparable YoY due to change in the
reporting structure)
• The EBITDA came in at | 353.3 crore vs. our expectation of | 279.4
crore, up 21.5% YoY. EBITDA margins came in at 25.9%, up 144 bps
YoY vs. our expectations of 22.2% mainly driven by the exceptional
other operating income
• The company reported a PAT of | 308.6 crore (vs. expectation of
| 212.7 crore), up 44.5% YoY aided by higher operating leverage
Strong bouquet of ~38 channels; launching new channels
Zee Entertainment, one of the leading media conglomerates with a
bouquet of ~38 channels has a presence across genres ranging from
general entertainment (GEC) to music, sports and regional. Zee TV, its
flagship GEC, has a viewership share of ~17%, and has consistently
remained second or a very close third in the space in the last two years.
The company has benefited from improved rating and higher than
industry advertisement growth (22.6% over FY12-14 to | 2380.0 crore).
Zee is trying to prop up its inventory by expanding the prime time band in
the weekends. We believe the advertisement revenue growth would be a
gradual process in tandem with the economy. The company is expected
to post a CAGR of 15.3% over FY14-17E to | 3646.9 crore.
Subscription revenue growth to slow down with delay in digitisation….
The Trai related mandate on content aggregators has compelled Zee to
make accounting related changes in revenue recognition for distribution
of Turner channels. On international subscription revenues side, changes
in arrangements with operators across international territories have
impacted this quarter. Absence of India related cricket series from its
sports portfolio will also keep its subscription subdued. Digitisation
activity is expected to continue at a gradual pace. However, increasing
bouquet price will help in better content monetisation leading to 10.6%
CAGR in FY14E-17E in domestic subscription revenues to | 1785.5 crore.
Zee in investment phase; one more channel expected by FY15
Zee recently launched its second GEC Zee Zindagi, which is a platform for
global content. In addition, Zee is also exploring options for new channels
by the end of the current fiscal. Zee’s strategy to invest in quality content
and expanding channel inventory would increase its programming costs,
going ahead. Though this would help Zee gain further market share, it
may hurt margins. Zee is expected to post subdued EBITDA margins in
the coming two years. We have factored in an EBITDA margin of 26.3%,
27.1% & 28.4% in FY15E, FY16E & FY17E respectively.
Maintain HOLD; expensive on valuations, margins to remain subdued
The stock has rallied 24% over the past four months with no major
fundamental change in the company. This has translated into 38x FY16E
EPS, which appears quite expensive in comparison to other broadcasters.
Considering the fact that the revival in ad revenues is yet to take place
with the contraction of margins in the near future, we value the stock at
28x FY17E EPS of | 13.6. We have valued the stock at | 380 and maintain
our HOLD recommendation.



LINK
http://content.icicidirect.com/mailimages/IDirect_ZeeEnt_Q3FY15.pdf