Zee Entertainment Enterprises

Investors with a two-year horizon can buy the shares of broadcast player Zee Entertainment (Zee), given its strong presence in the regional and national (Hindi) general entertainment space. The company is well positioned to drive its advertising revenues, especially after the acquisition of key channels from Zee News, in addition to the improving scenario on the subscriptions front, thanks to direct-to-home (DTH) taking off in a big way.



At Rs 299, the share trades at 19 times its likely FY12 per share earnings. With most listed broadcast players in losses, there are no strict comparables. In addition, the company derives 44 per cent of its revenues from subscription (a more sustainable revenue stream), which is substantially higher than most broadcast players.

In FY10, Zee generated revenues of Rs 2,197 crore, remaining flat over FY09, while net profits fell marginally to Rs 477.5 crore. Given that 2009-10 was a tough year on the advertising front, the numbers appear reasonable. But with the acquisition of the regional general entertainment channels (GECs) from Zee News, effective January 2010, the company's fourth quarter results have been robust. Revenues grew 26 per cent, while net profits expanded 33 per cent over the March 2009 quarter.

Top Performer

Zee TV has consistently been among the top two-three channels in the biggest-and-most-lucrative Hindi GEC genre, along with Star Plus and Colors. Zee TV has also witnessed a steady increase in weekly gross rating points despite the competition. This space is characterised by concentration among the top three as the gulf in viewership between them and channels such as Sony Entertainment and NDTV Imagine is quite wide. Zee Cinema, another property, also garners top viewership. These augur well for advertising spends of companies that look for slots that draw maximum watchers.

Zee Marathi is a market leader in terms of viewership while Zee Bangla is second in its market. Zee Telugu and Zee Kannada also figure among the top in the respective regions, according to data from TAM Media Research.

With advertisers increasingly looking at greater regional — rural, semi-urban — reach, Zee's bouquet of channels is well positioned to gain from the increasing advertising pie.

This also reduces the advertisement dependence on Zee TV, the flagship channel.

Zee has also acquired 9x, another Hindi GEC channel, which would help it tap residual advertising revenues. The growth of DTH, though the average revenue per user (ARPU) there is yet to pick up, is likely to result in expansion of subscription revenues for the company.