Hold Zee entertainment; target Rs 129: KRChoksey

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Hold Zee entertainment; target Rs 129: KRChoksey

KRChoksey has recommended hold rating on Zee entertainment with a target price of Rs 129, in its October 18, 2011 research report.

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KRChoksey has recommended hold rating on Zee entertainment with a target price of Rs 129, in its October 18, 2011 research report.

"Zee entertainment reported its Q1 FY12 consolidated revenue of Rs 718cr, which was marginally up by 1% over y-o-y and 3% up q-o-q. EBITDA for the quarter was Rs 208cr, increased by 10% y-o-y and robust growth of 33% over Q1FY12. EBITDA margin for the quarter stood at 28.9%. Net profit for the quarter was Rs 156cr, up by 29% over Q2FY11 and 23% over Q1FY12. Net profit margin for the quarter was 21.7%. Although improvement in margins was a sweet surprise, sluggish growth in advertising revenue remains a concern. Given management's guidance that this trend to follow for next couple of quarters, we believe marginal revenue growth can be expected in FY12E, however given company's strong fundamentals, we expect it to come on growth track with improvement in advertising spend going forward."

"The company had advertising revenue of Rs 395 cr for this quarter, which was marginally up by 4% q-o-q however it declined by 4% on y-o-y. Though advertising spends are better sequentially, overall trends remain subdued. Ad revenues are under pressure both in terms of volumes and ad rates. Also the management has revised earlier guidance of 12- 14% y-o-y ad industry growth to single digit growth if things recover in H2FY12. Subscription revenue for the quarter stood at Rs 291cr which was up by 4.3% on y-o-y, it declined by 3.6% on q-o-q due to change in accounting policy which are now being reported net of expenses. This change has been necessitated due to the formation of Media Pro, a joint venture, which pays subscription revenues to Zee, net of expenses. The management believes that mandatory digitization of cable will benefit the company. We believe that company's subscription revenue will grow at a healthy pace on a longer term horizon."

"Media industry is going through a bad patch of slowdown in advertising spend. We believe companies in this space will post early single digit advertising growth for FY12E. We remain positive on ZEEL in media space given company's strong balancesheet and positive development on Sports business front. The stock is trading at 185x and 16.7x PE to FY12E and FY13E respectively. We maintain our 'HOLD' recommendation on the stock with a target price of Rs 129 by assigning multiple of 19 times to its FY13E EPS of Rs 6.8," says KRChoksey research report.

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