Stock Fundamentals

Zee Entertainment,: Hold

K Venkatasubramanian | Updated on January 23, 2018

Poster of English Vinglish, Sridevi's comeback film

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Both ad and subscription revenue are poised to grow. But the stock is a tad expensive

Zee Entertainment, among the few broadcast players that are profitable, is well positioned to take advantage of an economic revival and likely increase in advertising over the next few years. The company, a pan-India broadcaster, has deep reach in both the national (Hindi) and regional (Marathi, Bengali etc) markets.

Investors can retain their holdings in Zee Entertainment; fresh exposure can be considered on a decline in the stock price linked to the broader markets.

The valuation of the stock is a tad rich at this point in time, despite the company’s sound growth prospects. At ₹340, the share trades at 29 times its likely per share earnings for 2015-16, more expensive than the broader market.

Strong viewership of its general entertainment channels (GECs) regionally and in Hindi drives the company's advertising revenue. Besides, a healthy proportion of subscription-based inflow is a key positive.

In the first nine months of the current fiscal, Zee's revenue grew 8.4 per cent year-on-year to ₹3,537 crore, while profit rose 10.7 per cent to ₹744 crore. The profit growth was not that strong as the earlier year due to higher depreciationand employee costs.

Healthy business mix

Zee generates over 36 per cent of its revenue from subscriptions. This is among the best in the industry and makes the company somewhat resilient to fluctuations in advertisement revenue when there are economic setbacks.

The company’s advertising revenue (around 57 per cent of total revenue) has grown at a healthy double-digit pace this fiscal.

Its bouquet of channels includes the flagship Zee TV (Hindi GEC), Zee Cinema, and regional channels in Marathi, Bengali, Telugu and Kannada. It also operates a set of sports channels. Zee TV has been successful in attracting viewership and has consistently been among the top few channels in the lucrative Hindi GEC genre, the largest advertising market.

Shows such as Jodha Akbar and Qubool Hai have high ratings in the key prime time slots.

Companies across sectors have preferred to place their ads with the top three-four players in this genre and Zee TV's strong position helps it garner a good share.

It has also launched &TV, another GEC that will compete with the smaller players such as Life OK, SAB and Sahara One.

Zee Cinema is also among the top few in the movie genre. It capitalises on its large bank of movies and broadcasts newly-released ones.

These include movies such as Chennai Express, English Vinglish and Heroine. The trend of film producers showing movies on entertainment channels soon after their release in multiplexes and single screens should also aid Zee Cinema and Zee TV.

Even in the highly competitive regional markets, Zee is among the top three or four broadcasters.

While Zee Marathi is among the top Marathi language broadcasters, the company has narrowed the viewership gap with regional players in the Bengali, Telugu and Kannada markets.

With telecom rollouts set to continue, traction in FMCG and ecommerce firms, and the likely revival in consumer durables, banking and real estate segments, ad volumes should increase. Advertisers are likely to prefer players with a regional and strong national presence. Zee is well placed to tap the opportunity.

The continuing digitisation of cable networks will aid subscription growth.

Any substantial slowdown in rural consumption in the future and sluggishness in the economy are risk factors.

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Published on April 05, 2015
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