While the nation rejoiced at India’s victory in the cricket World Cup 2011, companies such as Sun TVNetwork Ltd and ZeeEntertainment Enterprises Ltd are likely to bear the brunt of it in the form of lower advertising revenue in the March quarter.
That’s because ad spends were directed to cricket in the quarter. ESPN Star Sports is estimated to have garnered ad revenue to the tune of Rs 800 crore from the World Cup.
Secondly, the fact that the December quarter had the festival season last fiscal (that is usually strong for ad revenue) could also make numbers look weak on a sequential basis. What offers some consolation is that subscription revenue could partially offset the above mentioned factors.
Analysts expect Zee’s sports business to continue to show losses. Excluding a one-time fee of Rs 70 crore relating to a payment for premature termination of rights for a sporting event, operating losses of the sport business stood at Rs 103 crore in the December quarter. Performance of this business is likely to affect Zee’s overall operating profit.
Analysts from Kotak Institutional Equities expect Zee’s earnings before interest, tax, depreciation and amortization (Ebitda) to decline by 7% on a year-on-year basis. That’s “due to 1) sports business losses (Rs 30 crore versus positive Ebitda in Q4FY10) and 2) impact of Cricket World Cup 2011 on core business profitability”, said the analysts in their March quarter preview.
Zee’s sports business has been a concern. The company had maintained that operating profit margin for the December quarter, excluding the sports business numbers, is as high as 39%. Consolidated operating margin stood at 27.2%.
As far as Sun TV is concerned, revenue in the March quarter is expected to decline by about 20% on a sequential basis. Reported revenue of the December quarter includes revenue worth Rs 150 crore relating to the movie Enthiran. Sun TV’s operating profit margin and net profit, too, are expected to fall sequentially. Operating profit margin in the December quarter stood at a robust 84% for Sun TV.
Both Zee and Sun TV have underperformed the BSE-200 Index of the Bombay Stock Exchange since the beginning of this calendar year. Sun TV appears relatively better placed, thanks to its strong dominance in high-growth regional markets.