Zee Entertainment: Reality bites

The Zee Entertainment stock came off by nearly 6 per cent on Thursday. Life has become difficult for the broadcaster since Colors was launched in July last year. Within a few months, it was pushed down from its number two position in the Hindi general entertainment channel (GEC) space.

Now Colors has edged past Star Plus scoring 292 gross rating points compared with 267 for the latter in the week ended April 11, 2009. Typically, advertising follows GRPs with a lag and now that Colors has seen its GRPs sustain and it has established itself among the top two, it should see more advertising coming its way and at higher rates.

For Zee, this could mean a smaller share of the ad pie. Already ad revenues for Zee were up just 2 per cent y-o-y in the December 2008 quarter — non-sports ad revenues actually fell 15 per cent y-o-y — and they could well fall in the March 2009 quarter.

The June 2009 quarter will also be difficult with both the elections and IPL expected to eat into the GEC space. As it is with the slowdown in the economy, adspends are expected to grow only at about 6.5 per cent this year, which is about half the growth seen last year.

So ad revenues for Zee which are expected to have grown by just 15 per cent last year, could see even lower growth this year. At a price of Rs 128, the stock trades at around 14 times estimated 200-10 earnings and is overvalued.