BackZee Entertainment: priced in
Even though Zee posted a 44% year-on-year growth in its consolidated net profit last quarter to Rs308.6 crore, investors were disappointed
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Even though Zee Entertainment Enterprises Ltd posted 44% year-on-year growth in its consolidated net profit last quarter to ₹ 308.6 crore, investors were disappointed. Zee shares fell by 2.35% on Wednesday when the broader markets were positive. Perhaps that’s because net profit growth got a big boost from the more than doubling of “other income" to ₹ 80 crore and slower rate of increase in tax outgo.
Zee’s operating profit increased by 21.5%, comparatively faster than the 15% growth in its revenue, to ₹ 1,364 crore. Advertising revenue accounted for 54% of the total sales and increased by 8.5%, a bit better than what was seen in the September quarter. One-third of the revenue came from subscription business, which reported 2% revenue decline. The subscription segment was affected due to changes in accounting treatment. On a like-to-like basis, subscription revenue growth is 12% plus, said Mihir Modi, chief finance and strategy officer at Zee. Other sales and services accounted for the remaining revenue.
Zee shareholders are unlikely to fret too much, simply because they are already sitting on a 40% gain this fiscal year so far. The advertising outlook is strong in the coming days, as outlook for economic growth is positive. And then, the digitization process is expected to boost subscription revenue from a medium-term perspective.
All this comes at a price, and a steep one at that. At ₹ 381.60, the Zee stock trades at 34 times its estimated earnings for FY16.
As pointed out by Morgan Stanley in a report on Tuesday, “We believe a large part of the potential improvement in subscriptions for Zee is in the price, and any improvement in ad growth in FY2016 on the back of improved economic growth in India could be largely offset by the impact on margins of higher sports losses and new launches." Considering that, near-term appreciation may not happen in a hurry.
The writer doesn’t own shares in the above-mentioned companies.
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