The share price of Zee Entertainment Enterprises Ltd lost 10% on Friday to Rs 118 per share on announcing financial results below street expectations for the quarter ended 31 December. The Sensex index on the Bombay Stock Exchange was down by 1.7% on the same day.
This was mainly due to Zee’s sports business performance. Sports revenues for the quarter stood at Rs 166.5 crore including Rs 70 crore, a one-time fee relating to prematured termination of sporting events rights.
Also See Consolidated Financials (PDF)
The sport business incurred costs of Rs 200 crore in the December quarter. This means operating loss from the business has reduced to Rs 33 crore from Rs 54.2 crore in the September quarter. However, the sports business operating loss would be much higher at Rs 103 crore, excluding the one-time fee of Rs 70 crore from the sports revenues.
According to Atul Das, president, corporate strategy and business development at Zee, “Cost of rights written off for the sports business has gone up but the same amount of monetization has not happened.” Das also said that excluding the sport business numbers, operating profit margins of the company are as high as 39%.
Zee’s operating margins for the December quarter, including the sports business, stood at 27.2%, up about 70 basis points compared with the September quarter. One basis point is one-hundredth of a percentage point. The company’s numbers are not comparable on a year-on-year basis because Zee’s December financials include results of the R-GEC (regional general entertainment) business acquired on 1 January 2010.
Though according to the company the higher margins excluding the sports business are good, the question is whether investors would be convinced to look at margins excluding any one business. Zee’s sports business has been a drag in the first half of this fiscal as well and posted an operating loss of Rs 89.6 crore for the half year ended September.
The main businesses—advertising and subscription— accounted for 87% of the revenues in the December quarter and delivered a decent performance. Advertising revenues increased by 6.7% sequentially and contributed a little more than half of the company’s revenues.
Some analysts are disappointed with that performance, stating that the December quarter was supposed to be strong for companies in the space as the festival season got shifted to the third quarter this fiscal. Subscription revenues accounted for 34% of the revenue and grew by 3% sequentially.
Zee’s stock is likely to be surrounded by the overhang of its sports business in the near future. According to Das, costs are likely to remain higher in the current quarter as well and should normalize thereafter.
Graphic by Ahmed Raza Khan/Mint
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