Accumulate Zee Entertain; target of Rs 168: KRChoskey

KRChoskey is bullish on Zee Entertain and has recommended accumulate rating on the stock with a target of Rs 168 in its July 24, 2012 research report.

“Zee Entertainment Enterprises Ltd. (ZEEL) reported excellent numbers for Q1FY13 in spite of overall sluggish advertising environment. Net sales showed robust growth of 21% YoY driven by 18% growth in advertising revenue and 19% increase in subscription revenue. EBITDA stood at Rs 233crs, jumped by 50% YoY on account of curtailed operating expenses. Consequently EBITDA margin improved by 540bps to 27.7%. Net profit for the quarter was Rs 158crs, a growth of 18% YoY. Sharp increase in tax outgo dragged net profit margin by 30bps to 18.8%. ZEEL’s advertising revenue growth positively surprised us given the weak advertisement market scenario. Subscription revenue continued upward trend on the back of Media-Pro. We believe ongoing digitization will further boost subscription revenue. Shrinkage in sports losses and programming cost rationalization will help to improve margins. Maintain Accumulate.”

“ZEEL reported strong advertising growth of 18% YoY to Rs 447crs led by increased market share in flagship channel Zee and other regional channels. The growth in advertising was commendable considering sluggish ad spend for media industry due to macroeconomic concerns. Subscription revenue showed another quarter of strong growth on the back of Media-Pro. Subscription revenue for Q1FY13 was Rs 364crs, growth of 19% YoY. We expect further increase in this segment on account of digitization. The company reported EBITDA of Rs 233crs, robust growth of 50% YoY as programming and other operating expenses decreased. EBITDA Margins for the quarter improved by 540bps over Q1FY12 to 27.7%. We believe operating margin will slide marginally as ZEEL will continue to invest in new programming in order to beat the competition and increase market share in all the markets it operates. However savings on interest front and other income on account of strong cash balance will help to improve net profit margin.”

“ZEEL reported a strong quarter in spite of sluggish advertising spends in major sectors of advertising pie. Increase in market share for flagship channel and other regional channels support ad revenue growth to continue. We believe company is well placed to benefit from ongoing digitization which would help to boost subscription revenue. At current price, the stock is trading at 18.2x to its FY14E earnings. We retain ACCUMULATE on the stock with a target price of Rs 168,” says KRChoskey research report.

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