| Summary of Contents STOCK IDEA Zee News
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs73
Current market price: Rs54 Breaking news Key points - A compelling bouquet: Zee News Ltd (ZNL) operates a unique bouquet of channels comprising six regional entertainment channels and four news channels. The key revenue contributors are Zee News, Zee Marathi and Zee Bangla, with the latter two channels having made tremendous gains in viewership to achieve and consolidate their leadership positions. While Zee Gujarati is being revamped, the new businesses of Zee Telugu, Zee Kannada, Zee 24 Taas and Zee 24 Ghanta are making steady progress.
- Strong traction in ad revenues: ZNL is focusing hard on improving programming of the existing channels and gaining a much higher contribution from the new channels as they stabilise and gain traction in viewership. Powered by these efforts ZNL's ad revenues are expected to grow at a CAGR of 33% over FY2007-10.
- Being part of the Zee group is an advantage: Of the ten channels that ZNL operates eight are pay channels. The packaging of the ZNL channels with Zee TV, the flagship channel of the Zee group, allows ZNL to garner higher pay revenues. Also, the infusion of addressability in television distribution system on account of the digitisation of CAS and the expansion of DTH is likely to ensure sustained improvement in the pay revenues of ZNL.
- Margins to improve substantially: As the new businesses achieve a critical mass of viewership, we expect a substantial growth in the revenue contribution from these channels. We expect the company to achieve operating profit margin of 20.6% by FY2010.
- Attractive valuations: We expect ZNL's revenue and net profit to grow at CAGR of 30% and 125% respectively over FY2007-10. We value ZNL at 4x Mcap/Sales FY2009E, which gives a price target of Rs73 per share. That is an upside of 35% from the current price of Rs54.3 a share. At our price objective ZNL would be valued at a price/earnings multiple of 35x FY2009E EPS of Rs2.1.
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