The Zee Entertainment Enterprises Ltd’s stock has been an outperformer. Operating profit margin has remained strong. Advertising revenue has consistently grown faster than the industry average, and that has helped a great deal.
The September quarter was no exception, with consolidated advertising revenue rising 15.7% from a year ago, albeit slower than the June quarter growth.
But the real surprise was the 21.7% rise in subscription revenue. An early closure of content deals helped strong domestic subscription growth. There were also catch-up revenues from the previous quarter.
Revenue from “other sales and services” more than doubled on account of a higher revenue from the movie business because of the release of Hindi movie Rustom, apart from syndication revenues from several cricket series played during the quarter.
Operating profit margin for the quarter was 28.9%, similar to what was seen in the previous quarter. Operating profit came in at Rs489 crore. Kotak Institutional Equities had estimated an operating profit of Rs480 crore. Zee’s pre-tax earnings increased 21% to Rs407 crore.
Going forward, a drop in the ratings of the flagship general entertainment channel will have a small adverse impact on advertising revenue, said Mihir Modi, chief finance and strategy officer.
Still, the firm intends to beat the industry advertising growth rate. “A moderation in FMCG (fast-moving consumer goods) and e-commerce spends might have some impact on industry growth in coming quarters,” says Zee. However, telecom industry ad spend growth will compensate to some extent. Subscription revenue growth is expected to normalize, according to Modi.
But investors seem to be capturing the brighter picture. Zee shares currently trade at 38 times estimated earnings for this year. Operating profit margin is the metric to be closely watched.