Zee Entertainment sees 17% rise in FY09 rev outlook

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » Zee Entertain BSE | NSE 09/02/12 Are Mutual Funds betting on Zee Entertain?

Zee Entertainment Q3 consolidated revenues stood up 5.3% at Rs 545.6 crore against Rs 518.2 crore the previous quarter. Its net profit was at Rs 84 crore versus Rs 113.5 crore. Its OPM's were down to 22% versus 30.3%.

Commenting on road ahead for the company, Puneet Goenka, CEO, Zee Entertainment, said he expects total revenue guidance to be up by about 17% for the year. "Our expectation on advertising revenue for Q4 is also flat over last year. Our endeavour is that we are holding on to our rates. So, we would rather do less volume than cut rates."

Here is a verbatim transcript of the exclusive interview with Puneet Goenka on CNBC-TV18. Also watch the accompanying video.

Q: What really is the problem that the profit has contracted so sharply?

 

A: There are two problems that we faced in this quarter. The first one was the technician's strike that took place in the month of October and November. One week in October and three weeks in November was a complete blackout on the GEC genre and that caused a huge slump.

 

Secondly, the economic slowdown itself has taken its toll in the month of December, which has caused the revenues to be down.

 

Q: How do you expect the performance to pan out in the current quarter i.e. Q4? Your advertising revenues in Q3 were up quite marginally, 1.5% or thereabouts. How are ad revenues expected in the current quarter? How will subscription revenues pan out as they grew decently in Q3?

 

A: Our expectation on advertising revenue for Q4 is also flat over last year. We expect decent growth in subscription income. Our full year outlook is that advertising will grow by 15% and subscription will grow by 23%.

 

Q: If you can just put a number on how much of the loss so to speak, or expense came out of the strike then perhaps we could remove it and call it a one-time item. Could you separate that from the slowdown in advertising?

 

A: Unfortunately, I am not at liberty to share that number, because that would get in to channel by channel reporting, which we do not do.

 

Q: Coming to your advertising revenues, would you be able to shed some light on what is happening in advertising? Are revenues falling because of lower inventory utilisation or are they falling because you simply have to cut rates? And if that is the trend, how much percentage do you believe you have to cut rates by in this particular quarter and can inventory utilisation go down further?

 

A: Actually it is a combination of two things. Our endeavour is that we are holding on to our rates. We would rather have a lesser fill than reduce our pricing because once we reduce pricing and to take it back up is a mammoth task in itself. So, we would rather do less volume than cut rates.

 

Q: You have guided us on subscription and ad revenues. Can you give revenue guidance as well?

 

A: We expect the total revenue guidance to be up by about 17% for the year.

 

Q: In terms of expenses, your financing costs are up rather sharply to nearly Rs 40 crore from Rs 16 crore, which is almost a three-fold jump. How would you expect this to pan out? Is that also one-time because of revenue subscription being remitted to Ten Sports or do you think the pressure will continue?

 

A: That is correct. It is a one-time. We have also had to raise a lot of debt in Ten Sports on account of the cricket rights being won by the West Indies Board and now the Pakistan Board for which we had also expensed off the one-time fee that has been paid to the banks for raising debt.

 

Q: The Morgan Stanley note on your results says, management on its post earnings call curtailed its revenue growth guidance from 25% to 20% as you mentioned. It says it implies a 3% growth in fourth quarter. Could you shed some light because this quarter looks as bad as the last quarter looked? So, where exactly is this 3% growth coming from - advertising, subscription? Where do you expect that 3% - move up so to speak?

 

A: The 3% number is not correct. The 3% number is only for advertising, whereas subscription we still expect a healthy growth in double-digits for the coming quarter.

 

Q: How are TRPs doing? Have you been hit by the increase in competition?

 

A: Definitely, we have been hit by the increase in competition. As we all know, Zee TV the flagship channel is now at the number three slot from its number two position that we were dominating in the early part of the year. Our ratings have taken some amount of hit, but are still stable at upwards of 200 GRPs on the flagship.

 

On the second brand, which is Zee Cinema, we are still the market leaders by far against any of our competitors.