Zee News

Investors with a two-year horizon can consider accumulating the shares of Zee News (Zee), a news and regional entertainment broadcaster, considering the leading viewer-ship position for several of its channels and strength in subscription-driven revenues.

At Rs 29, the stock trades at about 12 times its likely 2009-10 per share earnings. The current valuation may make the stock appear pricey. But since its independent existence from 2006, the company has seen triple-digit compounded annual growth in revenues and profits. The fact that it is among the few broadcasters that are profitable enables the company to command higher valuations.

Even in the recent December quarter, when broadcasters had revenue declines over the previous year, Zee was able to achieve 45.4 per cent growth in revenues and 18.4 per cent growth in net profits.

A strong regional language general entertainment offering, with either leadership or strong positions in most of this genre continues to help the company unstring purses of regional and national advertisers.

The company derives over 75 per cent of its revenues from advertising. This has actually grown by 10 per cent sequentially even in the most turbulent December quarter. But with the current economic slowdown, advertising budgets of companies are likely to remain under pressure in the medium term.
A recent study by FICCI-KPMG indicates that television advertising revenues are likely to grow from Rs 8250 crore currently, at a compounded annual rate of 13.5 per cent over the next four years to Rs 15,550 crore. There are, however, some near-term triggers.

With the general elections scheduled in April-May, political parties may step up spending on campaigns for better reach.
Regional GEC leadership

Zee has a combination of national news and regional general entertainment channels in its bouquet. Zee Business, its Hindi news channel, commands a 40 per cent viewership share (the rest is taken by CNBC Awaaz).

Zee Marathi and Zee Bangla channels are market leaders in Maharashtra and West Bengal respectively. This position has been maintained despite Star’s launch of channels such as Star Jalsha (Bengali) and Star Pravah(Marathi). Zee, in both these markets, enjoys three-four programmes among the top five viewed, according to TAM and exchange4media ratings.

Even in the south market, which is dominated by the Sun group, Zee has made significant inroads in viewership.

Zee Telugu is now second behind Gemini TV, and has two in the top five viewed programmes. Zee Kanada is in the third position after Udaya TV and ETV Kannada.

These are positives for Zee on many counts.

One, it shows that by adopting the innovative programming route, its channels have been able to penetrate markets that have one or more dominant players.

Two, unlike several broadcasters that are focussed on English News or Hindi general entertainment category, Zee has a wider reach through its regional channels, which would help it garner advertisement revenues from regional companies in addition to ones of national prominence.

Three, there is no dependence on any one channel for advertisement revenues, as five of its channels are in a position to monetise prominent positioning in their respective markets.

The company has also been quick to take unviable channels off air quickly.

A case in point being that the company would shut down Zee Gujarathi from April this year.

There are a slew of channel launches in regional entertainment and 24-hour news categories. These new channels are expected to result in a loss of Rs 70 crore this fiscal.
Subscription spikes

Digital subscription revenues for Zee contribute over 17 per cent to its overall revenues. Over the last one year, subscription revenues have grown by over 45 per cent. This may further ease revenue dependence on advertising alone.

Conditional access system or viewing satellite channels through set-top boxes may continue to grow over the next few years. The Telecom Regulatory Authority of India has made conditional access mandatory in 55 cities across the country by 2011.

This will mean better reporting of revenues by cable operators and, in turn, a better share of revenue for broadcasters such as Zee. The FICCI-KPMG study indicates that there would be 35 million digital cable houses, apart from 55 million analogue ones by 2013.

Besides, the steady headway of DTH as a delivery platform is also a positive for Zee. By end-2008, the country had as many as 10 million subscribers on this platform; this is estimated to go up to 16 million by 2009.

Apart from Dish TV and Tata Sky which are established players in DTH, new entrants such as Reliance-Big TV and others such as Sun Direct and Bharti Airtel may help expand the overall DTH pie.

All these ensure a larger opportunity for the company to garner higher subscription revenues.