Monday, April 11, 2016


With Zee Entertainment, one of the leading broadcasters, delivering healthy revenue growth over the past few years, the stock has made neat gains. This has been despite the not-so-consistent profit growth, which has been in single digits in recent times. Higher expenses associated with the launch of &tv, a new channel, impacted FY15 numbers. Similarly, a sharp increase in tax expenses and a fall in other income in the December quarter dented net profit growth for the nine-month period ending December 2015.

After tripling to Rs.388, the stock now trades at 44 times its trailing twelve-month earnings, much higher than the 20 times five years ago. Though the stock appears expensive, Zee’s prospects look good.

Zee has a strong foothold in the Hindi and the regional language general entertainment channel space, which accounts for the largest share in the TV viewership base. Given its leading position, Zee is well-placed to garner a good share of the likely higher ad spends by companies in sectors such as FMCG, telecom and e-commerce. An expected improvement in economic growth should drive up company ad spends. In the past too, Zee has delivered well on this front. Zee grew its ad revenue 20 per cent annually between FY10 and FY15. For the nine-month period ending December 2015, it posted ad revenue growth of 29 per cent year-on-year. Sixty per cent of the company’s revenue comes from ads.

Subscription revenue accounts for another third. Income from this source grew 13 per cent during the five-year period ending FY15 and 14 per cent (y-o-y) in the latest nine-month period. While subscription revenue growth is expected to stay on track, there is no near-term trigger for a surge, given the delay in the completion of cable TV digitisation (phases III and IV).

But, as more areas get digitised over time, Zee should benefit from subscriber additions and higher yields in the long run. This will come about with improved reporting of subscribers and better channel packaging, not possible under the existing analog cable system.

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