Stock Review: Zee Entertainment Enterprises

 

Growth in domestic subscription revenue will boost Zee Entertainment Enterprises' earnings in the coming quarters. In FY11, considering consolidated operations, the Mumbaibased company's net profit grew by 30% to . 623 crore on a year on year basis. Net sales rose 37% to . 3,011 crore. In coming quarters, continued growth in domestic subscription revenues would play a crucial role in boosting the company's revenues. In the fourth quarter, the company's domestic subscription revenues grew by 35% to . 202 crore on a year on year basis.

Digital subscription, which at present forms 30% of total domestic subscription revenues, would be key business segment that would drive its domestic subscription revenues. The government has directed the four metros — Delhi, Mumbai, Kolkata, Chennai — to be digitised by the end of FY12.

Zee had 17.1 million paid direct-tohome (DTH) subscribers at the end of last fiscal. In overseas markets, subscription revenues drive sales of media and entertainment companies, lowering dependence on advertising revenues.
Zee recently formed a 50:50 joint venture distribution company with Star Network that will distribute all 68 channels of Zee and Star. The two channels together form 40% of the industry viewership.

The tie-up will give Zee and Star better bargaining power over distributors and lead to rise in subscription revenues in long term. Currently, Zee has . 1,250 crore cash on its books with negligible debt. It has earmarked around . 80 crore for conversion of its standard definition channels to highdefinition channels. Increasing conversion to HD leads to higher realisations per user. The company's stock has risen about 2% in the past one year against a gain of 12% in benchmark Sensex.