Based on our interaction with the management, we expect Zee Entertainment’s (ZEEL’s) Q4FY09 revenues to decline ~5% y-o-y to Rs5 billion.
In line with this drop, the company’s revenues for FY09 are estimated to touch Rs21.6 billion, an upside of 18% over FY08. The growth in revenues is likely to be driven by a 13% and a 22.5% growth in ad and subscription revenues respectively.
ZEEL expects its DTH revenues to reach Rs1.1bn in FY09E as against Rs0.6 billion in FY08. The company expects it to grow by 50% in FY10.
Budget for movies has been cut down significantly from Rs1.5 billion earlier to Rs0.30 billion for FY10. To improve future margins, ZEEL’s management indicated that it intends to cut cost of content and SG&A expenses.
Currently, at Rs106, the stock trades at 10.4X of consensus FY10 earnings of Rs10.2. We do not have a rating on the stock.