BackZee: higher sports losses spoil show
On the revenue front, Zee fares much better compared with its profitability for the December quarter
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Zee Entertainment Enterprises Ltd’s profitability for the quarter ended 31 December was adversely affected by the performance of its sports business, including the sports channels, which posted a loss of about ₹ 104 crore.
What are the reasons? One was the curtailment of the India-South Africa series during the quarter. “The India-South Africa series featured two Tests and three ODIs (one-day internationals), a big decrease from the three Tests, seven ODIs and two T20s that the two teams were originally scheduled to play," said Abneesh Roy, associate director at Edelweiss Securities Ltd.
T20 events are relatively more profitable. Moreover, the rupee’s depreciation led to higher costs, as costs are accounted for in dollars unlike revenue, which is largely accounted in rupees, said Roy, who maintains that in the long run, the sports business will be a key driver for the company’s subscription revenue.
Zee’s overall operating margin for the December quarter declined by 335 basis points over the same period last year to 24.5%, the weakest in the last three quarters. A basis point is one-hundredth of a percentage point. The company maintains, excluding sports, operating margin came in at 39.6%, which show a sequential and year-on-year increase on a comparable basis.
Advertising revenue increased robustly by 34% compared with the year-ago quarter and accounted for about 58% of the total revenue. Accordingly, on the revenue front, Zee fared much better compared with its profitability for the quarter. The company’s total revenue increased by 26.6% over the same period last year to ₹ 1,188 crore.
Revenue growth was better than the first two quarters (about 15.5%). But subscription revenue growth was the slowest in the last three quarters and that was disappointing. Zee’s subscription revenue increased by 11% to ₹ 456 crore. Analysts say that domestic subscription revenue growth of 12.2% was lower than expectations. In the September quarter, domestic subscription revenue increased relatively faster at 19.3%. Atul Das, the company’s chief corporate development officer, said that for fiscal year 2013-14, the company will be able to clock 14-15% subscription revenue growth, which does not look bad.
“Market will keep watching subscription revenue very keenly to gauge impact of digitization," said a note from Motilal Oswal Securities Ltd, commenting on the results. Sure, the December quarter advertising growth has been strong, but at ₹ 284.45, the Zee stock trades at 26 times its estimated earnings for the next fiscal year and valuations seem to be adequately capturing the company’s resilient advertising performance for some time.
In fact, if advertising revenue does not sustain, it could be worrisome. In any case, investors should have little to complain, as Zee shares have appreciated by 35% since the beginning of this fiscal year, outperforming the benchmark Sensex by a good margin.
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