We hosted the CEO of Zee News Limited (ZEEN) for investor meetings in Mumbai. The meetings were lively and the takeaways reinforce our positive view on the stock.
ZEEN has three driver channels – Zee Marathi, Zee Bangla and Zee News – making up ~70% of its total ad revenues.
We believe this reduces the risk of overdependence on one channel property and ensures a well-diversified revenue stream, unlike that of many other TV media companies in India.
The composition of ZEEN’s ad revenue is well balanced between the two key genres of regional entertainment and news – regional genre contributes ~60% while news channels contribute ~40% to ad revenues.
The company expects advertising revenues of Rs1–1.5bn to accrue to television channels in the June 2009 quarter from the upcoming elections. A majority of that spend will likely happen on news channels, due to their audience profile.
Management expects Zee Tamil to break even in 36–48 months, which will likely happen on achieving 180 GRPs weekly (Zee Tamil currently logs 35 GRPs a week) translating to a No.3 position in the Tamil GEC market.
Zee Gujarati is being shut down on 20 April 2009 because the channel is unlikely to turn profitable in the near future.
This is based on the assessment that market growth for Gujarati regional entertainment is stunted since Gujarat as the market consumes entertainment in the Hindi language rather than in the Gujarati language.
We view this as a judicious move as it will help management focus on new channels that have better profit prospects (Zee Tamil and 24 Ghanta).
ZEEN draws 21% of its revenues from subscription now and this is expected to grow to ~30% in three years. This will largely be led by the rampup of DTH subscribers although one needs to monitor the trends quarterly.
Cost of debt ranges between 12–19.5% while the blended cost of debt would be 13–14%.
We like ZEEN’s exposure to the regional GEC space and Hindi News markets, and forecast an EPS CAGR of 30.6% for FY3/09–11E. The stock remains our top pick in the India media sector.