Zee Entertainment Enterprises
Zooming ahead
In a favourable economic environment, the company would be able to profitably capitalise on its march towards No. 1 slot in the general entertainment space
| Buy | Zee Entertainment Enterprises |
| BSE Code | 505537 |
| NSE Code | ZEEL |
| Bloomberg | Not listed |
| Reuter | ZEE.BO |
| 52-week High/Low | Rs 373 / Rs 210 |
| Current Price | Rs 315 (as on 28th December 2007) |
Today, Zee Entertainment Enterprises (ZEEL) is India’s leading television broadcasting company with a global presence, close to 500 million viewers through Zee TV, Zee Cinema, Zee Sports, Zee Music and Zee English.
Zee is the largest producer and aggregator of Hindi programming in the world, with more than 30,000 hours of original programming in the library. It is one of the most popular entertainment brands in India. It was ranked as the ninth most popular brand within a decade of its launch. It also has one of the largest Indian multiple distribution platform reach with an estimated reach of 500 million viewers in over 120 countries globally including USA, Canada, Europe, Africa, the Middle East, South East Asia, Australia and New Zealand
Fast forward towards No 1
The viewer ship share of Zee TV, the flagship general entertainment channel, grew from 16% to 26% in 2006-07. The channel share has risen to an all time high in lucrative prime time band. Zee TV was the only channel that has grown by such magnitude in its genre. This has helped Zee TV to narrow the gap considerably with the No.1 Star, which was six times ahead of Zee TV in terms of TRPs last year. This has been largely on account of exclusive contents that were launched in the channel during 2006-07.
As per reports given by TAM Media Research, Zee's relative channel share stands at 28.5% onlty slightly less than the 30.7% that Star Plus has of the entire channel pie in the period between August 26, 2007 and September 1, 2007. The Lack of programming innovation on Star's front has worked to the benefit of only Zee, in the recent past. It now has around 20 programs in the Top 50, which is growing by 3-5 programs every quarter.
Solid financial show
For the quarter ended September 2007, consolidated operating revenues grew 14% at Rs 398.60 crore with advertising revenues up 28% at Rs 219.50 crore, subscription revenues up 10% at Rs 162.46 crore and other sales & services was down 46% at Rs 16.64 crore due to ZILS ceasing to be subsidiary of the company. OPM skyrocketed to 33.1% against 6.2% on the back of hike in billing rates. As a % of sales, programming & operating costs decreased 2710 bps at 41.6% on account of lower sports programming. However, staff costs increased 160 bps at 8.5% and selling & other expenses decreased 140 bps at 16.8% as a % of sales. Thus operating profit zoomed 508% to Rs 132.08 crore.
Other income increased 48% at Rs 22.47 crore. Interest cost for the quarter was up 148% at Rs 8.50 and depreciation charge for the quarter increased 9% at Rs 5.54 crore. Thus PBT expanded 395% at Rs 140.51 crore. Provision for taxation increased 490% at Rs 43.45 crore, which took PAT up by 362% at Rs 97.30 crore. Minority interest for the quarter was Rs 4.56 crore against credit of Rs 1.22 crore. Thus net profit for the quarter stood at Rs 92.50 crore up 316%.
Upbeat future
Subhash Chandra, Chairman, says, "We had a commendable second quarter performance, with operating profit growth of 508% over corresponding quarter of the last fiscal year, this substantial growth has been led by robust increase in advertising revenues. Over the years, we have put in sincere efforts towards content initiatives, which are now being reflected in our results. Our flagship channel Zee TV gained leadership in the last few weeks of this quarter and the support of other channel’s rising GRPs will provide the requisite momentum for growth in advertising revenues. The Indian television industry is going through a very interesting phase of transformation from analogue to digital, which has positive implication for all the players in the media value chain. We are confident that the Zee Entertainment would be a big beneficiary of this change through unlocking of its revenue potential."
Punit Goenka, Whole Time Director, commented "This quarter our flagship channel - Zee TV has been successful in not only bridging the gap with the genre leader substantially, but also has surpassed the leader in prime time. Zee TV, during the quarter, averaged a channel share of 30% in all day’s viewership ratings, up from 25% in the previous quarter. The channel’s rating has grown across all time bands and has averaged 310 gross rating points (GRPs) in the recent weeks up from average 234 GRPs in the previous quarter. Because of our key shows like Betiyaan, Saath Phere, Kasamh Se, Teen Bahuraniyaan & Dulhann leading their own respective slots, we have now become a leader in the time band from 5 pm to 10 pm in the weekdays. During weekends, our musical show Sa Re Ga Ma Pa became the top programme in the ‘Hindi GEC’ segment despite fierce competition. As a result we now have around 20 programmes in the Top 50 which is growing by 3-5 programmes every quarter."
Zee Cinema has maintained its leadership position through constantly launching new properties - the latest being Showman Show, a tribute to India’s leading filmmaker’s (Raj Kapoor & Subhash Ghai). KLUB (targeted at the youth through relevant movies) & Cinema Hall (movie viewing experience for the Family at home) have also enabled us to further consolidate appointment viewing.
On the English GEC front, the focus was to strengthen our prime time in the relevant audience segment. Zee Café is currently the leading channel in the English GEC space, both in all day & prime time. To further capitalize on this lead, last month we announced launch of 11 new programs of which most shows are 'Current Season' episodes from the US. Zee Café, today, is the first channel in the country to run popular sitcoms simultaneously with their launch in the US thereby realizing its core proposition to its viewer. In sports, Zee Sports and Ten Sports combined are leaders with 52% relative channel share, which is more than twice that of the closest competitor." Goenka added.
Elaborating on the performance, Mr. Pradeep Guha, CEO said,
"With GRPs on a continuous rise, across all channels we have introduced a slew of ad sales initiatives, focusing on improving inventory utilization, attracting higher yielding categories of business and increasing Effective Rates across all time bands – with special focus on prime time, all of which have resulted in a revenue growth rate that is much faster than that of the industry."
Sports business to start contributing
The sports business revenues during the second quarter was Rs 42.2 crore and the EBITDA for the second quarter stood at Rs 35 lakh in comparison to a EBITDA loss of 30 lakh during the first quarter of the current fiscal year. The second quarter of FY08 has seen Zee Sports and Ten Sports reinforce their positions in both football and cricket. Zee Sports produced and telecasted the ONGC Nehru Cup football tournament from Delhi, which India won to gain the biggest international success for the national side for many years and an audience of 1.6 million for the final against Syria. More importantly, the new floodlit stadium in Delhi was packed for the final. Since then Zee Sports has also hosted the Hero Cycles Federation Cup with audience of over 600,000 for two of the final games.
Ten Sports meanwhile has acquired more cricket rights in the shape of the South African and Zimbabwe boards to add to the Sri Lanka, Pakistan and West Indies boards they currently feature. Also on screen, the two channels have been sharing the UEFA Champions League and other international football while the Noida production facilities are now supplying Ten Sports with a nightly sports news half hour show. In addition, Zee Sports has re-branded its own news and magazine shows to provide a nightly Hindi sports news show called Sports Planet and a series of five other weekly shows on the major sports.
Coming quarters of FY08, Zee Sports will showcase the launch of ‘Indian Cricket League’ (ICL) and the re-launch of the ‘National Football League’. The Football league will re-brand as the 'I League' and in the seasons to come, the plan is to increase the size of the ‘I league’ first division, from ten to sixteen clubs and that should mean several more metros being represented in the top tier of Indian soccer.
ICL belonging to Zee promoters has been making rapid progress. Having signed several internationals and 51 Indian players, the parallel competition is set to challenge the Board of Control for Cricket in India’s (BCCI) grip on game. ICL’s first tournament was in 3QFY08 and will provide exclusive content for Zee’s sports channels (Zee Sports and Ten Sports).
CAS, DTH, IPTV growth to boost subscription revenues
Digitization is being led by a government mandate to increase set-top box adoptability over Pay Cable TV, and new distribution mediums such as DTH (satellite TV). These trends will increase the reported subscriber base substantially and curb pay revenue leakages, resulting in significant increase in pay revenues for broadcasting companies.
Addressable distribution mediums such as DTH and broadband (IPTV) are likely to drive significant changes in how content is valued, resulting in an increased value disparity between strong and weak content. Broadcasters with strong or ‘killer’ content are likely to benefit the most.
With ratings for ZEE having picked up strongly over the last few quarters, it is well poised to benefit significantly from the above trends.
Renewed focus on overseas markets
Zee has renewed its focus on international markets where it licences its broadcasting rights. Although Zee broadcasts to over 120 countries, its key markets are Europe, the US, the Middle East and South Asia. Zee aims to improve its paid international reach – currently it is paid for 4.6m of the estimated 14.8m households that it reaches. Zee plans to further monetise its international reach by going pay in more regions and for more channels.
Launches ZeeNext
ZEEL recently launched a general entertainment youth-based channel, ZeeNext. This channel will be the flanking channel to Zee and will take on competition, in addition to providing new advertising inventory.
The company has decided to stop the Zee Arabia channel. Also, it is entering into a joint venture with a broadcasting company in the Middle East to launch a movie channel to broadcast Hindi films dubbed in Arabic. Also, Zee Sports would be entering the US market partnering with Dish Network.
Valuation fails to factor in ZEEL’s continuously improving stature
Improving viewer-ship and changing distribution landscape are significant opportunities for Zee, which will drive its advertisement as well as pay revenues on a sustained basis. Already w.e.f. from January 1, 2008 there would be an additional surcharge of 25% on advertisers across the board by all broadcasters. ZEEL itself would also be taking rate hikes.
Notably emerging competition from new general entertainment channels has been overestimated and the new competition is unlikely to have any significant impact on the company’s growth. Moreover its sports channel has nothing to lose evenif Zee groups’ Indian Cricket League does not fare well as all the losses and capital costs are borne by Zee group and not ZEEL. ZEEL has only to gain if ICL succeeds as it is the sole broadcaster of ICL events.
In FY 2008 we expect the company to register revenues and net profit after minority interest of Rs 1755.98 crore and Rs 389.84 crore respectively. On equity of Rs 43.36 crore and face value of Re 1 per share, EPS works out to Rs 9.0. This EPS is likely to rise to Rs 11.8 in FY 2009. The share price trades at Rs 314. P/E on FY 2009 EPS (of Rs 11.8) is 26.7, which is low considering that ZEEL is the largest listed broadcasting company in India and has good visibility of above-average earnings growth rates.
| | 0503(12) | 0603(12) | 0703 (12) | 0803 (12P) | 0903 (12P) |
| Sales | 1275.4 | 1423.32 | 1441.10 | 1755.98 | 2194.97 |
| OPM (%) | 33.8 | 19.0 | 22.1 | 32.5 | 35.0 |
| OP | 431.64 | 270.20 | 318.80 | 571.45 | 768.24 |
| Other inc. | 55.58 | 64.15 | 63.00 | 88.77 | 100.00 |
| PBIDT | 487.22 | 334.35 | 381.80 | 660.22 | 868.24 |
| Interest | 20.66 | 24.16 | 22.00 | 31.31 | 39.14 |
| PBDT | 466.56 | 310.19 | 359.80 | 628.91 | 829.10 |
| Dep. | 32.87 | 39.14 | 22.80 | 27.01 | 31.87 |
| PBT before EO | 433.69 | 271.05 | 337.00 | 601.89 | 797.23 |
| EO | 14.00 | -1.90 | 0.00 | 0.00 | 0.00 |
| PBT after EO | 419.69 | 272.95 | 337.00 | 601.89 | 797.23 |
| Tax | 102.32 | 51.56 | 96.40 | 192.61 | 263.09 |
| PAT | 317.37 | 221.39 | 240.60 | 409.29 | 534.14 |
| Minority interest | 11.89 | 4.11 | 21.20 | 19.44 | 23.33 |
| Net Profit | 305.55 | 217.37 | 219.40 | 389.84 | 510.81 |
| EPS (Rs)* | 7.4 | 4.7 | 5.1 | 9.0 | 11.8 |
| # Not Annualised. | |||||
| Zee Entertainment Enterprises: Consolidated results |
| | 0709 (3) | 0609 (3) | Var. (%) | 0709 (6) | 0609 (6) | Var. (%) | 0703 (12) | 0603 (12) | Var. (%) |
| Sales | 398.6 | 349.64 | 14 | 790.19 | 639.09 | 24 | 1441.1 | 1104.2 | 31 |
| OPM (%) | 33.1 | 6.2 | | 31.9 | 13.8 | | 22.1 | 22.4 | |
| OP | 132.08 | 21.74 | 508 | 251.77 | 87.9 | 186 | 318.8 | 247.4 | 29 |
| Other inc. | 22.47 | 15.15 | 48 | 43.77 | 29.83 | 47 | 63 | 56.2 | 12 |
| PBIDT | 154.55 | 36.89 | 319 | 295.54 | 117.73 | 151 | 381.8 | 303.6 | 26 |
| Interest | 8.5 | 3.43 | 148 | 20.31 | 14.33 | 42 | 22 | 13.1 | 68 |
| PBDT | 146.05 | 33.46 | 336 | 275.23 | 103.4 | 166 | 359.8 | 290.5 | 24 |
| Dep. | 5.54 | 5.09 | 9 | 12.19 | 10.24 | 19 | 22.8 | 16 | 43 |
| PBT before EO | 140.51 | 28.37 | 395 | 263.04 | 93.16 | 182 | 337 | 274.5 | 23 |
| EO | 0 | 0 | | 0 | 0 | | 0 | 0 | |
| PBT after EO | 140.51 | 28.37 | 395 | 263.04 | 93.16 | 182 | 337 | 274.5 | 23 |
| Tax | 43.45 | 7.36 | 490 | 84.69 | 18.24 | 364 | 96.4 | 60.3 | 60 |
| PAT | 97.06 | 21.01 | 362 | 178.35 | 74.92 | 138 | 240.6 | 214.2 | 12 |
| Minority interest | 4.56 | -1.22 | PL | 8.75 | 0.6 | 999 | 21.2 | 11.7 | 81 |
| Net Profit | 92.5 | 22.23 | 316 | 169.6 | 74.32 | 128 | 219.4 | 202.5 | 8 |
| EPS (Rs)* | # | # | | # | # | | 5.1 | 4.7 | |
| # Not Annualised. | |||||||||
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