Thursday, July 23, 2009

Zee Television - Sell

Zee Entertainment’s advertising revenues were expected to fall in the June quarter given the general slowdown in the economy and also the IPL and T20 cricket tournaments. The drop, however, has been rather sharp at 29 per cent year-on-year. Clearly, the flagship channel has lost some share to Colors; in the current scenario where Zee is up against both Star and Colors, it would need to ensure that it enjoys viewership on a consistent basis. It’s true that Zee’s average gross rating points (GRPs) for the quarter improved to 234 from 212 in the March 2009 quarter.

Moreover, there have been some weeks in which the entertainment channel has gained share and to its credit it now has 24 of the top 50 shows. But the ratings need to sustain for only then can they get monetised. Zee’s sports business, however, has done fairly well during the quarter to grow at 35 per cent year-on-year. Moreover, subscription revenues appear to be on track; while analysts had been expecting a growth of about 3 per cent sequentially, the number came in just short of that and was driven by a very strong contribution from the DTH segment.

However international pay revenues, which fetch a fairly large chunk of subscription sales, were flat during the quarter. With total revenues for coming off by 12 per cent to Rs 476 crore, the operating profit fell by about 19 per cent to Rs 117 crore. The operating profit would have been smaller had it not been for lower expenses, something which the management has been talking about.

It’s unlikely the company will be able to rein in costs given the keen competition in the marketplace. Moreover, analysts are somewhat puzzled at the lower outgo on interest given that the average debt on the company’s books, for the quarter has been around Rs 500 crore.

In the current year, Zee is expected to turn in revenues of close to Rs 2,100 crore. The net profit estimated at just over Rs 400 crore, would be lower than that in 2008-09 translating into a fall in the earnings per share of about 16-17 per cent. At the current price of Rs 194, the stock trades at around 20 times estimated 2009-10 earnings and is expensive.


Source : Business-standard