Zee Entertainment (Buy, PO Rs145)
�� We forecast 6% YoY decline in ad revenue during FY12E, led by a decline in
sports-related business given the lack of significant events during the year.
We forecast about 13% YoY growth in ad revenue for FY13, led by a macroled
recovery in 2H FY13 and a likely higher allocation to the GEC genre
given the lower number of cricket days in FY13E vs. FY12E.
�� We expect EBITDA margins to expand by 300bp over FY11-13E to 30%, led
by lower sports-based losses and higher subscription income. EBITDA
margins ex sports stood at 36% 2Q FY12. Including sports margins stood at
27%.
�� Balance sheet is much healthy than in 2008. Net cash equivalent at Rs11bn
(2Q FY12) vs. 3.6bn at end-FY08. While Zee remains cautious on investing
in high celebrity-driven programming, it could effectively increase
programming hours and launch new programs to win back ratings. It has
been more active in 2H vs. 1H during the year.
�� Sports events are unlikely to surprise negatively even in FY13E given that
key cricket event, such as the India-South Africa series is scheduled to be
telecast in FY14E. Besides, with implementation of cable digitalization in
metro cities by June 2012 and cities with over one million-plus population by
March 2103, Zee could aim at higher subscription revenue for its cricket
properties. The sport business could potentially turnaround by FY14E/15E.
�� We retain our Buy with a PO of Rs145 at 19x FY13E PE and PEG of 0.8
(EPS CAGR 23% in FY12-14E). We see potential upside on higher
subscription revenue from digitalization and the recent tie-up with STAR to
form a distribution company.
�� Key risk: A continued deterioration in TV ratings for Zee TV, its flagship
channel, and a subdued ad-spend environment in FY13E.
�� We forecast 6% YoY decline in ad revenue during FY12E, led by a decline in
sports-related business given the lack of significant events during the year.
We forecast about 13% YoY growth in ad revenue for FY13, led by a macroled
recovery in 2H FY13 and a likely higher allocation to the GEC genre
given the lower number of cricket days in FY13E vs. FY12E.
�� We expect EBITDA margins to expand by 300bp over FY11-13E to 30%, led
by lower sports-based losses and higher subscription income. EBITDA
margins ex sports stood at 36% 2Q FY12. Including sports margins stood at
27%.
�� Balance sheet is much healthy than in 2008. Net cash equivalent at Rs11bn
(2Q FY12) vs. 3.6bn at end-FY08. While Zee remains cautious on investing
in high celebrity-driven programming, it could effectively increase
programming hours and launch new programs to win back ratings. It has
been more active in 2H vs. 1H during the year.
�� Sports events are unlikely to surprise negatively even in FY13E given that
key cricket event, such as the India-South Africa series is scheduled to be
telecast in FY14E. Besides, with implementation of cable digitalization in
metro cities by June 2012 and cities with over one million-plus population by
March 2103, Zee could aim at higher subscription revenue for its cricket
properties. The sport business could potentially turnaround by FY14E/15E.
�� We retain our Buy with a PO of Rs145 at 19x FY13E PE and PEG of 0.8
(EPS CAGR 23% in FY12-14E). We see potential upside on higher
subscription revenue from digitalization and the recent tie-up with STAR to
form a distribution company.
�� Key risk: A continued deterioration in TV ratings for Zee TV, its flagship
channel, and a subdued ad-spend environment in FY13E.
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