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Zee Entertainment reported revenue growth of 3% to `6.9bn in 1QFY12, marginally
lower than our expectation of `7.1bn. It has booked significant loss in the sports
channel at `566mn and revenues dropped to `874mn. The management has guided for
loss of `1bn in its sports channel and single-digit advertising growth in FY12. We
estimate its FY12 EPS at `6.4, after factoring in losses in the sports channel, and FY13
EPS at `7.7. We are valuing the stock on FY13 earnings and upgrade to accumulate
with a target price of ` 146 at 19x FY13E.
No advertising growth in 1QFY12: ZEE’s 1QFY12 revenues were up 3% at `6,982mn
compared to `6,769mn in 1QFY11. Its advertising income grew 0.5% to `3.7bn. The
1Q is among the small quarter for media companies but the weakness in the quarter
was more pronounced due to sharp fall in advertising volumes. The advertisers held
back the inventory, which led to fall in volumes and lower inventory utilisation
despite higher contract values.
The total subscription revenues were robust at `3,051mn, domestic subscription
revenues jumped 29% at `2,075mn and international subscription revenues were
down 3.5% at `975mn in 1QFY12.
Revenues from domestic DTH operators were up 55% at `1,107mn against `710mn in
the 1QFY11. Other sales and services income was `145mn.
Operating profit margin plunge due to investment in rebranding and new media
business: ZEE’s operating profit margin after adjusting the losses in the sports
channel was 14.2%. Excluding losses of `566mn from the sports business, the margins
were down 610bps at 22.3%. This decline is attributed to rebranding exercise carried
out, which cost `210mn and its venture into new media business.
Operating profit was down 17% at `1,560mn, its programming and operating costs
were up 12% at `3,423mn. Personnel cost was up 25% and total costs incurred by the
company were `5,423mn, showing 11% increase from 1QFY11.
Its tax rate was down at 23% versus 36% in 1QFY12. Adjusted PAT was `1,883mn,
representing an increase of 47% YoY.
Margins will see an improvement in the following quarters, as there was one-time
investment of `210mn in branding exercise and the advertising growth scenario is
expected to improve towards the end of 2Q with festive season. For the entire year, ad
growth rate is seen at 8-10% lower than earlier estimates of 12-14%. For FY12, OPM is
at 26% factoring in the losses of the sports business.
Market share intact across genres: The GRPs of the overall GEC genre have firmed
up post-World Cup season. Zee TV managed to stay on third position with an
average market share of ~17%; while Star Plus and Colors maintained their top two
positions. The network’s Hindi movie channel Zee Cinema’s channel share was 25%.
In the regional space, Zee Marathi continued to maintain its leadership with over 32%
share; Zee Bangla ranked second in the Bangla GEC genre with a market share of
32%. Zee Telugu had channel share of over 18% in its genre.
Maintain sports channel’s losses at `1bn: The sports channel posted losses of
`566mn in the 1QFY12. The sports channel revenues were `873mn. Going ahead, the
management has guided for a loss of `1bn for FY12 from its sports channel and for
single-digit advertising growth in FY12.
Valuation
ZEE’s EPS is seen at `6.4 in FY12E and at `7.7 in FY13E. At the current price the stock
is trading at a P/E multiple of 20x FY12E and 17x FY13E estimates. We are valuing
the stock on FY13 earnings and upgrade to accumulate with a target price of `146 at
19x FY13E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Zee Entertainment reported revenue growth of 3% to `6.9bn in 1QFY12, marginally
lower than our expectation of `7.1bn. It has booked significant loss in the sports
channel at `566mn and revenues dropped to `874mn. The management has guided for
loss of `1bn in its sports channel and single-digit advertising growth in FY12. We
estimate its FY12 EPS at `6.4, after factoring in losses in the sports channel, and FY13
EPS at `7.7. We are valuing the stock on FY13 earnings and upgrade to accumulate
with a target price of ` 146 at 19x FY13E.
No advertising growth in 1QFY12: ZEE’s 1QFY12 revenues were up 3% at `6,982mn
compared to `6,769mn in 1QFY11. Its advertising income grew 0.5% to `3.7bn. The
1Q is among the small quarter for media companies but the weakness in the quarter
was more pronounced due to sharp fall in advertising volumes. The advertisers held
back the inventory, which led to fall in volumes and lower inventory utilisation
despite higher contract values.
The total subscription revenues were robust at `3,051mn, domestic subscription
revenues jumped 29% at `2,075mn and international subscription revenues were
down 3.5% at `975mn in 1QFY12.
Revenues from domestic DTH operators were up 55% at `1,107mn against `710mn in
the 1QFY11. Other sales and services income was `145mn.
Operating profit margin plunge due to investment in rebranding and new media
business: ZEE’s operating profit margin after adjusting the losses in the sports
channel was 14.2%. Excluding losses of `566mn from the sports business, the margins
were down 610bps at 22.3%. This decline is attributed to rebranding exercise carried
out, which cost `210mn and its venture into new media business.
Operating profit was down 17% at `1,560mn, its programming and operating costs
were up 12% at `3,423mn. Personnel cost was up 25% and total costs incurred by the
company were `5,423mn, showing 11% increase from 1QFY11.
Its tax rate was down at 23% versus 36% in 1QFY12. Adjusted PAT was `1,883mn,
representing an increase of 47% YoY.
Margins will see an improvement in the following quarters, as there was one-time
investment of `210mn in branding exercise and the advertising growth scenario is
expected to improve towards the end of 2Q with festive season. For the entire year, ad
growth rate is seen at 8-10% lower than earlier estimates of 12-14%. For FY12, OPM is
at 26% factoring in the losses of the sports business.
Market share intact across genres: The GRPs of the overall GEC genre have firmed
up post-World Cup season. Zee TV managed to stay on third position with an
average market share of ~17%; while Star Plus and Colors maintained their top two
positions. The network’s Hindi movie channel Zee Cinema’s channel share was 25%.
In the regional space, Zee Marathi continued to maintain its leadership with over 32%
share; Zee Bangla ranked second in the Bangla GEC genre with a market share of
32%. Zee Telugu had channel share of over 18% in its genre.
Maintain sports channel’s losses at `1bn: The sports channel posted losses of
`566mn in the 1QFY12. The sports channel revenues were `873mn. Going ahead, the
management has guided for a loss of `1bn for FY12 from its sports channel and for
single-digit advertising growth in FY12.
Valuation
ZEE’s EPS is seen at `6.4 in FY12E and at `7.7 in FY13E. At the current price the stock
is trading at a P/E multiple of 20x FY12E and 17x FY13E estimates. We are valuing
the stock on FY13 earnings and upgrade to accumulate with a target price of `146 at
19x FY13E.
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