Zee Entertainment Enterprises Ltd had a good March quarter with losses made by its sports properties lower than what had been estimated by analysts. Besides this, the impact of the cricket World Cup on Zee’s advertising revenue was not as severe as anticipated by the Street.
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The firm had reported a poor December quarter in which operating losses from the sports business touched Rs 103 crore, excluding the one-time payment of Rs 70 crore relating to the premature termination of an event’s broadcast rights. In contrast, the sports business’ operating loss for the March quarter was limited to Rs 15 crore.
“The improvement in the sports business can be attributed to better revenue monetization in the March quarter compared to the previous one,” said Atul Das, president (corporate strategy and business development) at Zee.
Zee’s sports portfolio includes channels such as Ten Sports, Ten Action and Ten Cricket. In the sports portfolio, key properties include cricket broadcasting rights for five countries—Sri Lanka, Pakistan, South Africa, Zimbabwe and West Indies. Zee has not been able to reap the full revenue potential from these, which is why the sports business is posting losses.
According to Das, operating profit margin for the March quarter, excluding the sports business, is as high as 37% against 31% a year ago. However, the same metric for the December quarter was much higher at 39%. On a consolidated basis, the operating margin has remained roughly the same year-on-year at 28%.
Zee did well on the advertising and subscription fronts. Advertising revenue increased by 36% and accounted for three-fifths of the total revenue, while subscription revenue rose by 24% and accounted for 39% of the total revenue. Advertising and subscription revenue includes that from the sports business.
The company says that subscription revenue from international operations increased by 7.5%, while subscription revenue from domestic cable business rose 26.5% from the year-ago quarter. On an overall basis, total revenue and profit before tax and exceptional items both increased 23% to around Rs 800 crore and Rs 240 crore, respectively.
Losses in the sports business are expected to continue this fiscal as well. According to an analyst who attended the investors’ conference call, Zee is estimating sports losses to drop to Rs 80-100 crore in 2011-12 from Rs 207 crore in the last fiscal. The Indian Premier League cricket tournament may hit Zee’s advertising revenue to some extent in the current quarter.
Zee’s stock underperformed the BSE-100 Index of the Bombay Stock Exchange (BSE) during the quarter. The stock reacted positively to the financials and rose 8.3% to Rs 135 apiece on Tuesday as the benchmark Sensex went up.
After the better-than-expected results, sentiment for the stock is expected to change for the better.
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