Subscription revenues have shown healthy traction, spurred by rising DTH collections and have helped offset a slack advertising environment, to an extent.
We remain positive on the structural changes in the distribution end of the market and expect a 14% CAGR in sub revenues over FY09-11E.
We also note ZEEL’s improved and consistent program performance Q2FY10 onwards is likely to sustain and reflect on advertising revenues with a lag. Renewed optimism on a faster recovery in corporate earnings will likely be encouraging for advertising revenue trends too.
Counter-cyclical growth opportunity given estimated muted growth in advertising revenues is expected to be driven by domestic subscriptions growth of 23% over FY09-11E, led by increasing DTH penetration. Expect a 17% EPS CAGR over FY09-11E as margins benefit from higher sub revenues and cost management.
With a 29% y-o-y decline in advertising revenues in Q1 (12% YoY, overall) we expect Q1FY10 to be the likely bottom in terms of advertising revenue growth numbers.
We also opine the base effect should start getting better Q3FY10 onwards. As per our channel checks, advertising spend traction in FMCG & Telecom, the key drivers for GEC ad revenues, continues to be firm even in an uncertain environment.
Maintain ACCUMULATE with a price target of Rs.218 (Rs.212 earlier). Reiterate that traditional media like broadcasting likely to be early beneficiaries of a renewal in the advertising environment.
Retain a favorable outlook for the ZEEL stock given a likely pick up in ad spends starting 2H FY10; improved/consistent ratings position ZEEL to monetize the improving macro with a lag.