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Friday, April 18, 2008

Investment Idea - ZEE Entertainment Enterprises Limited

Report from Geojit research desk
 
Report Date April 17, 2008.

Company Name ZEE Entertainment Enterprises Limited

(ZEEL)

Recommendation BUY

CMP – Rs. 220/- Target Price – Rs.285/- Mkt. Cap. 9539.2 crore
 

Investment Rationale

Ø ZEEL, one of the largest Integrated Media and Entertainment Company in India, has reported excellent

performance for Q4 FY 2008. Consolidated revenues increased by 36.8% to Rs 525.95 crore primarily

driven by 33.3% growth in advertisement revenues of Rs.246.55 crore. Growth in Subscription revenues

was subdued at 12% at Rs.207.06 crore as despite Indian subscription revenue growing 15%, company has

lost a lot of leverage on international revenue due to dollar devaluation. Other Sales & services grew to

Rs.72.34 crore (Rs.14.63 crore) as a result of higher syndication sales of Ten Sports and revenue from

education business. OPM% was flat at 24.8% (24.7%) due to higher programming & marketing costs of

newly launched Zee Next Channel. PBT (before extraordinary items) increased by 41% to Rs 150.03 crore

after accounting for higher interest expense to Rs.18.43 crore (includes loss of Rs.11.16 crore on account

of Forex derivative transaction.) After providing for extraordinary expense (on account of diminution in

value of investments) of Rs.2.58 crore (nil), PAT (after minority interest) was up by 53.1% to Rs.92.43

crore.

Ø For FY 2008, Consolidated revenues rose by 26.9% to Rs 1834.3 crore driven by growth in advertising

revenues by 32.8% to Rs.934.23 crore and subscription revenues by 10.2% to Rs.732.6 crore, while Other

sales & services perked by 118% to Rs.167.50 crore. OPM% jumped to 29.4% (22.1%). After providing

for higher interest cost of Rs.55.44 crore (includes forex loss of Rs.26.18 crore), PBT (after extraodinary

expense) grew @66% to Rs.569.72 crore and PAT (after minority interest) spurted by 72.7% to Rs 383.7

crore.

Ø Indian Television broadcasting industry is going through a very interesting phase. Market will expand with

lot many new channels in each genre launched or being launched which will have positive implication for

all players in media value chain. ZEEL with its diversified genre of content offering, would be a big

beneficiary of this change through unlocking of its revenue potential.

Ø Its flagship channel Zee TV has emerged as a firm challenger to number one position in viewership share

across all competing channels in General Entertainment Category (GEC) genre with its programs in each

slot has started to record higher GRP. As on March 2008, Zee TV had 25 programs in "Top 50 program"

from just 2 in 2005.

Ø Going forward, ZEEL will improve viewership share further with higher investment in programming

content particularly in Afternoon band and weekend program. Company launched Zee Next – new channel

in GEC focusing on youth audiences thereby bridging missing link in GEC space. Launched in Q3 FY08

end, Zee Next is well received and is now planning to roll out fully with aggressive programming and

marketing strategy in FY09. Zee Next will involve capex of Rs 300 crore in FY 09. Net Loss for FY 09

will be approx. Rs 150-200 crore. (Loss in Q4 FY 08 was Rs 32 crore). Break-even of this channel will be

in FY 12.

Ø Going forward, subscription revenue is expected to grow faster at 30% as compared to advertising revenue

as they are going to be more platforms to distribute channels in FY09. Company may also make ad-rate

hike to capitalize higher ratings. This will increase revenues and profits substantially in future. Company

expects to grow topline @ 30% and bottomline @25-30% (despite losses from Zee Next) in FY09.

Valuation

Ø At CMP of Rs.220/- (Re 1/- face value), share is trading at 24.7 times its FY 2008 consolidated EPS of Rs

8.89 and 20 times its FY 2009 expected consolidated EPS of Rs 11. We recommend to "BUY" the share at

CMP.
 

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