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Zee Entertainment Enterprises Neutral
ZEE.BO, Z IN
Weak Ad growth and Sports losses play the spoilsport
ZEEL reported Net Sales, EBITDA and PAT growth of 3%, -17% and 8%
respectively for Q1FY12. There was significant disappointment on revenue and
margins on account of poor ad growth and higher operating losses for sports
division. While mgmt had guided for weak near term growth, extent of EBITDA
decline (-17% y/y) and ad growth (flat y/y) surprised us negatively. While stock
has corrected 10% from its recent peaks, we believe it is still early to get
constructive on this name given cautious near term outlook provided by the mgmt.
Retain Neutral with Mar’12 TP of Rs145.
Ad growth: FY12 starts on a weak note with flat growth in Q1FY12 driven
by moderation in ad spends by key industries like FMCG, consumer durables,
financial services, autos and negative impact of Cricket tournaments (World
Cup & IPL). Management stated that visibility remains low and was cautious on
near term, curtailing its earlier 12-13% ad growth expectation for TV industry
in FY12 to high single digits.
DTH drives subscription revenue growth of 17% y/y. Strong DTH revenues
(+56% y/y, +13% q/q) supported overall domestic growth (+29% y/y, +3%
y/y). International subscription revenue growth was weak (-3% y/y, -10% q/q)
due to viewership churn in Europe. While management guided for flat
subscription growth for international markets, they expect DTH revenue growth
to remain healthy. Benefits from recent distribution JV with Star are expected to
start flowing through over next 2-3 qtrs in terms of enhanced cable subscriber
declaration and better pricing.
Q1 weighed down by majority of FY12 sports losses. Management
maintained its earlier guidance of sports related losses of Rs1bn in FY12,
though a significant part of this accrued in Q1 on account of India West Indies
cricket series. ZEEL is taking a more disciplined approach towards bidding for
new sport properties and expects sports division to achieve breakeven by FY13.
Earnings revision. We have revised down EPS for FY12/13E by 4-5% as we
moderate our ad growth rate assumptions. We see improvement in ad growth
rates, sustained uptrend in viewership ratings, margin performance for nonsports
business (in view of higher costs and competitive enviornment) and sports
business profitability as key catalysts for a stock re-rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Zee Entertainment Enterprises Neutral
ZEE.BO, Z IN
Weak Ad growth and Sports losses play the spoilsport
ZEEL reported Net Sales, EBITDA and PAT growth of 3%, -17% and 8%
respectively for Q1FY12. There was significant disappointment on revenue and
margins on account of poor ad growth and higher operating losses for sports
division. While mgmt had guided for weak near term growth, extent of EBITDA
decline (-17% y/y) and ad growth (flat y/y) surprised us negatively. While stock
has corrected 10% from its recent peaks, we believe it is still early to get
constructive on this name given cautious near term outlook provided by the mgmt.
Retain Neutral with Mar’12 TP of Rs145.
Ad growth: FY12 starts on a weak note with flat growth in Q1FY12 driven
by moderation in ad spends by key industries like FMCG, consumer durables,
financial services, autos and negative impact of Cricket tournaments (World
Cup & IPL). Management stated that visibility remains low and was cautious on
near term, curtailing its earlier 12-13% ad growth expectation for TV industry
in FY12 to high single digits.
DTH drives subscription revenue growth of 17% y/y. Strong DTH revenues
(+56% y/y, +13% q/q) supported overall domestic growth (+29% y/y, +3%
y/y). International subscription revenue growth was weak (-3% y/y, -10% q/q)
due to viewership churn in Europe. While management guided for flat
subscription growth for international markets, they expect DTH revenue growth
to remain healthy. Benefits from recent distribution JV with Star are expected to
start flowing through over next 2-3 qtrs in terms of enhanced cable subscriber
declaration and better pricing.
Q1 weighed down by majority of FY12 sports losses. Management
maintained its earlier guidance of sports related losses of Rs1bn in FY12,
though a significant part of this accrued in Q1 on account of India West Indies
cricket series. ZEEL is taking a more disciplined approach towards bidding for
new sport properties and expects sports division to achieve breakeven by FY13.
Earnings revision. We have revised down EPS for FY12/13E by 4-5% as we
moderate our ad growth rate assumptions. We see improvement in ad growth
rates, sustained uptrend in viewership ratings, margin performance for nonsports
business (in view of higher costs and competitive enviornment) and sports
business profitability as key catalysts for a stock re-rating.
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