Citigroup report on Zee Entertainment Enterprises:
Buy: Another Ad-Rate Hike, DTH Business Listing Soon
Another ad-rate hike
According to Zee management, ad rates for flagship channel ZEE TV have been hiked by 15% recently. This is the third rate hike over the last 12 months and full upsides will accrue only after the next 2-3 quarters.
Zee ratings remain stable
Ratings in most prime-time slots remain stable. As expected, the re-launch of KBC on Star TV in the prime 9-10 p.m. band, has affected Zee's ratings, though to a lesser extent than anticipated. KBC's initial ratings are lower than expected and below KBC-2 in 2005.
Pay revenue growing strong
Zee's pay revenues grew 55% in 3QFY07 and momentum to pick up over the next few quarters driven by a pickup in DTH subscriber growth and CAS off-take. This bodes well for both growth and margins.
Cricket World Cup to be near-term dampener
Cricket World Cup in Mar-Apr will be played in the Caribbean, and all matches will be played during the day. Live broadcast time of these matches will coincide with prime time in India. Zee is selling its time ad-inventory for Mar-Apr in advance, which could be at lower realizations.
Stock going Ex-DISH TV on 12 Feb
Zee stock will start trading ex-DISH TV (DTH business) from February 12. According to the management, DISH TV is expected to list around 23-24 February. Zee shareholders will get 57 shares of DISH TV for every 100 shares of Zee. We expect DISH TV to list around Rs 127, based on our DCF-based valuation.