Q4 results: Zee Entertainment sticks to 30% margin guidance for FY19

Costs have gone up due to launch of Zee5, digital application

Zee Entertainment posted a better-than-expected March quarter performance, led by strong growth in advertising revenues. The advertising segment, which accounts for over 60 per cent of the company's revenues, grew 24 per cent over the year ago quarter. On like-to-like basis, which includes the exit from sports business and acquisitions, the growth was 21.5 per cent. 

The broad-based recovery in rural demand and the steady urban market has led to an increase in the advertising spends. The growth on advertising is however on a lower base due to demonetisation. Given the strong volume growth in key segments, advertising growth is expected to sustain in FY19. While the company posted a 15.9 per cent growth in FY18, it expects to outperform the sector's advertising growth, which is estimated at about 12 per cent in the current financial year. 

Subscription revenue was up by 18 per cent on a comparable basis, supported by the deals with distributors in the quarter. Domestic subscription revenue growth for the year at 11.8 per cent, however, came below expectations, as it was affected by the delay in phase-III of monetisation. The company expects to see a mid-teens growth in FY19 from the segment.

There has also been a cost surge with expenditure up 15 per cent due to increasing programming hours for regional content, higher movie amortisation costs and higher content costs for Zee5, the company's over-the-top application. In addition, to the content costs for 50-60 shows that the company plans to showcase on Zee5, higher launch-related marketing expense on digital initiatives have also led to an increase in overall costs. Costs for the full year, too, were higher on a comparable basis, led by brand refresh and  the Zee5 launch. Operating profit and margins were in line with the estimates. 

While the company seems confident of maintaining operating profit margins of 30 per cent, the profitability parameter needs to be monitored, given higher digital-related spends, expenditure on movies and regional content.