Buy Zee Entertainment; target of Rs 141: KRChoksey

“Zee Entertainment Enterprises Ltd. (ZEEL) reported Q4FY12 numbers above our estimates on account of strong subscription revenue. The company reported net sales of Rs 869crs, growth of 9% YoY. Advertising revenue dropped by 12% over Q4FY12 to Rs 415crs however 30% increase in subscription revenue to Rs 402crs offset the decline. EBITDA stood at Rs 160crs, declined by 28% YoY as programming cost and other expenses increased. Consequently EBITDA margins declined by 950bps to 18.4%. The company reported net profit of Rs 160crs, degrowth of 18.8% over Q4FY11. Increase in other income and interest gain helped to report net profitability at 18.4%, down by 630bps YoY. Slowdown in advertising spend would be compensated by strong growth in subscription revenue in FY13E. However operating margins will be muted as programming cost to remain at higher level in the competitive environment. Losses in sports property remains a concern.”

“ZEEL reported advertising revenue of Rs 415cr, declined by 12% YoY, mainly because there were more cricket properties in Q4FY11. Ad Revenue ex-sports increased marginally. The slowdown in advertising revenue had an adverse impact and the management guided ~10% ad revenue growth for the industry. Subscription revenue for the quarter was Rs 402crs, a strong growth of 30% YoY, mainly driven by boost in domestic subscription revenue. Media Pro reported subscription revenue of Rs 50.6crs. The company reported EBITDA of Rs 160crs, down by 28% YoY as programming and marketing costs increased. The company has heavily invested in new content. The management has guided investment in content to be continued in FY13E. Net profit was down by 18.8% YoY. Increase in other income and interest gain helped to improve net profitability. We expect margins to be muted in FY13E considering increase in programming cost and marketing expenses. ZEEL reported loss of Rs 58.8crs in Q4FY12 as the company launched two new sports channels and rupee depreciation. Losses for whole FY12 were Rs 145crs. The management has guided these losses to come down to Rs 65crs in FY13E.”

“ZEEL reported a healthy quarter in spite of sluggish advertising spends. 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 18.7x to its FY13E earnings. We recommend ACCUMULATE on the stock with a target price of Rs 141 by assigning 21x PE to FY13E eps of Rs 6.7,” says KRChoksey research report.  

Public holding more than 90% in Indian cos

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