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Zee Entertainment recorded a good December quarter on the operational front, with revenue up 14.8 per cent year-on-year at Rs 1,364 crore. The revenue growth, which beat expectations, was led by the advertising segment, which grew 8.5 per cent to Rs 742 crore. The company says excluding the revenue from the loss-making sports channel, ad revenue growth is in the mid-to-high teens. Analysts estimate revenue growth from the ad segment to be 14-18 per cent. The other key segment of revenue is subscription, which fell 2.3 per cent year-on-year.
Adjusted for accounting changes due to the Telecom Regulatory Authority of India’s content aggregator norm for domestic subscription revenue and given the arrangement with operators abroad, revenue growth was higher. While domestic subscription revenue saw low double-digit growth, international subscription revenue increased in high teens, in rupee terms. Revenue from this segment could see an uptick due to progress on digitisation.
The reported margin for the quarter stood at 25.9 per cent, lower than estimates. At Rs 306 crore, the net profit was up 43.5 per cent year-on-year. Adjusted for other income (forex gains and tax refund of about Rs 40 crore), which more than doubled to Rs 80 crore, the normalised net profit is about Rs 280 crore, against the estimated Rs 240 crore.
The company says TV ad expenditure is expected to improve in the coming quarters and the sector should benefit from an improvement in the economic environment. The company’s ad revenue, which grew more than the sector’s, could see an uptick due to higher spending by fast-moving consumer goods companies, as these look to pass on savings resulting from a fall in crude oil prices, and increase volumes and market share. Spending by e-commerce companies, which doubled over the past year, could be another avenue. In addition, the increase in weekly programming hours from 31-32 to 34 and the launch of a new Hindi general entertainment channel is expected to help improve ad revenue.
While analysts are bullish about the company’s long-term prospects, they believe at 36 times the FY16 and 28 times the FY17 earnings estimates, valuations are expensive. Not surprisingly, despite good results, the stock fell 2.35 per cent on Wednesday. Last year, the stock outperformed both its peers and the Sensex, owing to higher-than-industry ad revenue growth and profitability, with the operating profit margin for the first half of the year at 27.6 per cent. Only if it sustains its earnings momentum will there be a re-rating, say analysts.
