As far as advertising revenue goes, the launch of Hindi general entertainment channel &tv in the March quarter was helpful in driving growth.
Zee Entertainment Enterprises Ltd’s (Zee’s) last quarter financial performance was not bad at all. In fact, its advertising revenue increased by an envious 35% year-on-year, accounting for as much as three-fifths of the total revenue. Still, its shares shed about 4% on Wednesday when results were announced and broader markets were marginally down. Investors could be worried about the sharp Rs.500 crore jump in consolidated trade receivables over the past six months, said two analysts who attended the company’s results conference call. Zee has assured that the situation is seasonal and should stabilize by the year-end.
As far as advertising revenue goes, the launch of Hindi general entertainment channel &tv in the March quarter was helpful in driving growth. If one removes &tv’s performance, advertising revenue growth will be in the mid-20s, said Mihir Modi, chief finance and strategy officer, adding, “The industry itself grew at a healthy high teen growth rate in September quarter.” Further, the FMCG (fast moving consumer goods) sector has started to spend more, not to mention newer sectors like e-commerce that have continued to grow well, said Modi.
Though the subscription segment’s performance wasn’t as spectacular, it was in line with expectations. Subscription revenues increased 13% compared with a year ago, contributing slightly more than a third of total revenues. Zee anticipates a similar growth rate for the full year. With other sales and services contributing the remaining revenues, Zee’s total revenue increased 24% to Rs.1,385 crore, more or less similar to its June quarter performance.
Unfortunately, the healthy growth in revenue did not translate into commensurate profit growth, as Zee saw its advertising and publicity expenses, and other expenses increase at a much faster pace. Of course, operating profit margin dropped versus last year’s quarter, but it has consistently improved in the last three quarters. Its sustainability in future is a thing investors will have to keep a tab on. The same applies to the stellar advertising growth rate last quarter.
Meanwhile, BARC (Broadcast Audience Research Council India), a new rating system, is expected to release data for rural markets in the near future. Zee has always had greater reach in rural areas and the management is optimistic on being able to monetize its rural reach, point out analysts from Credit Suisse in a report on 8 October.
The next big ad price increase will happen when industry starts transacting on BARC data and rural viewership numbers are captured, Ashish Sehgal, chief sales officer at Zee, told analysts from Edelweiss Securities Ltd in a report last month.
But all that optimism could well be in the price. The Zee stock went up 13% so far this year compared with a 4% decline in the benchmark Sensex. The stock trades at 37 times this year’s estimated earnings. For the half year ended September, Zee’s net profit has increased at a much more modest 12%.