Zee Entertainment Enterprises Limited (BOM:505537)

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Equitymaster India

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Zee Entertainment Enterprises

Zee Entertainment is India’s first and one of the largest vertically integrated media and entertainment companies with operations spread across more than 10 countries worldwide including India, USA, UK, Australia, Middle East and many African and South Asian countries. The company broadcasts India’s leading television channels including Zee TV, Zee Cinema, Zee Sports, Zee Café, Zee Studio, Zee Music and ETC. The operations of Zee include content and broadcasting, film production and distribution and education business (learning centers in animation and media arts).

During FY09, Zee Entertainment’s topline increased by 18%. Zee TV had a 19% share in the Hindi general entertainment genre. Zee Cinema, the company’s Hindi movie channel, led its category with a 35% share, while Zee Café, its English general entertainment channel has a 20% share in its genre. The company is renegotiating programming cost and has laid off 350 to 400 people. The company also expects a 10% to 12% growth in the FY10 bottomline on the back of such measures.

Zee’s advertising revenues would continue to increase at a fast rate in the future due to its strong position in the general entertainment category (GEC). Subscription revenues will also increase due to the rollout of CAS and DTH. The entry of other players such as UTV, NDTV, TV18 in the GEC space can, however, cause a dent in the viewership ratings of Zee Entertainment and adversely affect its advertisement and subscription revenues. The slow rollout of CAS and DTH will cause a decline in its revenues.

Quarterly Result Analysis- Sept '09

Performance summary

- Topline declines by 6% YoY during 2QFY10 due to a 13% decline in advertising revenue.

- EBITDA margins improve to 28% in 2QFY10, up from 26% in 2QFY09 due to lower programming and operating cost.

- Other income grows by 4% YoY during the quarter.

- Excluding the tax write back in 2QFY09, bottomline grows by 12% YoY in 2QFY10 on the back of higher operating margins. Including the write back, bottomline declines by 38%.

                                         * Excess provision for tax in earlier years written back 
                                         **On trailing twelve months earnings 

What has driven performance in 2QFY10?

- Zee Entertainment witnessed a 6% YoY decline in topline in 2QFY10 due to a 13% decline in advertising revenue although subscription revenue increased by 9% during the quarter. Subscription revenues from domestic direct to home (DTH) were Rs 514 m during this quarter, an increase of 89% over 2QFY09. On a sequential basis, advertising revenues grew by 25% as a result of an improved business environment and steady improvement in ratings across network channels.

- Zee Entertainment’s flagship Hindi general entertainment channel (GEC) Zee TV achieved 256 weekly GRPs on an average during 2QFY10 and attained a channel share of 21% in its genre. Agle Janam Mohe Bitiya Hi Kijo, Pavitra Rishta and Saregamapa Lil Champs 2009 were the top rated shows for the channel this quarter. Zee TV had 20 out of the top 50 and 31 out of the 100 programmes in its genre during the quarter. Zee Cinema captured a 32% channel share during 2QFY10, while Zee Café garnered a 17% share.

- Zee Entertainment will acquire the regional-entertainment channels of Zee News (Zee Marathi, Zee Talkies, Zee Bangla, Zee Telugu, Zee Kannada & Zee Cinemalu). As consideration, the company will issue its equity shares to the shareholders of Zee News based on independent valuation. The company plans to take these channels international and expand revenue streams.

- In the forthcoming quarter, Zee TV will launch a new fiction show Yahaan Main Ghar Ghar Kheli, Saregamapa Mega Challenge and Dance India Dance-season 2.