Mumbai : Zee Entertainment had a good December quarter on the operational front with revenues growing 14.8% year-on-year to Rs 1,364 crore.
The revenue growth, which came in better than expectations, was led by advertising segment which was up 8.5% to Rs 742 crore.
Excluding the revenues from the loss-making sports channel, ad revenue growth would be in the mid to high teens, according to the company.
Analysts peg the revenue growth from the ad segment which accounts for over half of overall revenues to be in the 14-18% range. The other key segment of revenue is subscription which fell 2.3% year-on-year.
Adjusted for accounting changes due to Trai’s content aggregator regulation for domestic subscription revenues and given the arrangement with operators in international geographies, revenue growth was higher.
While domestic subscription revenues saw low double-digit growth, international subscription revenues has grown in high teens in rupee terms. Revenues from this segment could see an uptick on the back of progress on digitisation though some of the deadlines have been extended.
Reported margins in the quarter, however, came in at 25.9% and were lower than estimates. Net profit at Rs 306 crore was up 43.5% year-on-year.
Adjusted for other income (forex gain, tax refund of about Rs 40 crore) which more than doubled to Rs 80 crore, the normalised net profit is estimated to be about Rs 280 crore versus estimates of Rs 240 crore.
The key going ahead would be the improvement in advertising revenues. The company believes that TV ad spends are expected to improve in the coming quarters and the sector should benefit from the improvement in economic environment.
The company’s ad revenues, which have grown faster than the sector, could see an uptick from higher FMCG spending as consumer companies look to pass on the benefit of savings from the fall in crude oil prices and increase volumes as well as market share.
Spends from e-commerce companies could be another avenue as over the last year they have doubled. In addition, the increase in weekly programming hours from 31-32 to 34 as well as the launch of new Hindi general entertainment channel is expected to help improve ad revenues.
While analysts are bullish about the company’s long-term prospects, they believe valuations at 36 times FY16 and 28 times FY17 earnings’ estimates are expensive.
The stock has been a major outperformer (both peers and the Sensex) in 2014 on the back of a higher-than-industry ad revenue growth as well as profitability with operating profit margins in the first half of the year at 27.6%.
