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| Not time for a re-rating |
| Shobhana Subramanian / Mumbai May 18, 2009, 00:00 IST |
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The broadcaster may have seen an uptick in ratings but the competition remains formidable.
There’s never a dull moment in the Hindi general entertainment channel (GEC) space. Zee Entertainment yielded its number two slot to Colors last year. But in the past few weeks, the channel seems to have won back audiences; gross rating points (GRPs) inched up to 234 for week 19 from 228 in the previous week, narrowing the gap between it and Colors and Star Plus– both channels notched up 248 points each.
That’s an improvement over the average GRPs of 174 points that Zee commanded a few months back. Also, Zee’s non-film GRPs have moved up, surpassing those of Star Plus and Colors. And it now has 28 shows in the top 100, compared with less than 20 about a month back.
| PRESSURE ON PROFITS |
| (Rs crore) |
2008-09 |
%ch |
2009-10E |
% ch |
| Net sales |
2,176 |
18.60 |
2,260 |
4.00 |
| Ebitda |
536.5 |
-1.10 |
580 |
8.00 |
| Opm(%) |
25.00 |
(450 bp)
|
23.50 |
(150 bp)
|
| PAT |
375.00 |
-2.80 |
396.00 |
5.60 |
| EPS(Rs) |
8.65 |
-2.80 |
9.00 |
5.60 |
| P/E@Rs143 (X) |
16.50 |
|
15.80 |
|
| E=analysts estimates |
Ad revenues to stay weak
While the better ratings will help, these are early days. The channel needs to continue to capture the imagination of audiences because only then will advertisers bite. Zee’s revenues have taken a bit of a hit– fell 4 per cent in the March 2009 quarter.
Punit Goenka, CEO, says there has been a correction in rates of around 15 per cent. With advertising revenues expected to grow by just 6-7 per cent in the current year, Zee will need to fight harder to win its share. Once the IPL season is over, both Star and Colors are likely to up the ante with new shows and even though Zee is ready with its own slate, it won’t be easy.
Media buyers point out that Colors can no longer be ignored so it’s unlikely Zee will be able to increase advertising rates. As such analysts say ad revenues are unlikely to grow by more than 5 per cent this year.
However, the top line should get a boost from subscription revenues which rose 21 per cent last year led by domestic subscription revenues mainly led by DTH. While the increase in overseas revenues was disappointing, subscription revenues could gather momentum in the next couple of years cushioning relatively weak advertising revenues.
Keeping costs in check
With revenues expected to grow by just about 4-5 per cent this year, probably the best decision that Zee has taken in recent months is the decision to close down the loss-making ZeeNext channel. Besides, it will trim costs across areas, including content and distribution.
Goenka believes there’s little point in creating big-budget shows because it’s difficult to monetise the TRPs. He also believes there is no real need to splurge on marketing and promotions and says spends will be kept in check.
For instance, he points out that for “Agle janam”, both print and hoardings were used only six weeks after the launch. Till then the marketing push was restricted to promotions on the broadcaster’s bouquet of channels. However, he adds event driven promotions will continue especially in the smaller cities. Zee has also decided to abandon the studio model of making films and will instead commission films.
A staple diet of soaps
But it will not deviate from its tried and trusted formula of screening soaps; after all the improvement in ratings has come from its serials rather than blockbuster films, which contribute just about 10 per cent of Zee’s GRPs.
Says Goenka, “Soaps will be the mainstay and we’re focussing on themes that revolve around love and marriage, with younger women as protagonists. “That’s necessary because audiences are younger. Besides, with women forming the biggest chunk of the audience, the stories will revolve around them. That works well for advertisers–after all the biggest market for them is the youth in the SEC(a), (b) and (c) segments. Goenka believes Zee lost out to Colors because it didn’t have enough serials to replace existing shows; it now has a stronger pipeline including a new stand-up comedy show on weekends and several soaps.
The Street is miffed
Zee’s purchase of an additional stake of 40 per cent in the English channel Zee Studio for $56 million, was perceived as way too expensive at around 10 times forward revenues and didn’t go down well with the Street.
Analysts say the management didn’t provide details of the transaction for almost a year. They are also concerned about loans of around Rs 400 crore given to group companies. As it is, the June 2009 quarter will be a difficult one with both the elections and the IPL taking away advertising share.
Citigroup, however, believes that most of the risks to advertising revenues are captured in the price. The stock has underperformed the Sensex by about 35 per cent since the start of the year but has rallied recently to Rs 143 and now trades at 16 times estimated 2009-10 earnings. That’s no longer cheap, even if the ratings are up.
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