MOSt Inquire maintains "Buy" tag on Zee Telefilms

MUMBAI: Motilal Oswal Securities Inquire (MOSt Inquire) Indian Equity Research's update on Zee Telefilms maintained its 'Buy' recommendation as the stock quoted at 16.6xFY03E (Rs 102 as on 10 December 2002) and 12.5x04FY04E earnings.

Speaking to, Subhabrata Majumder of Motilal Oswal Securities stated, "The takeover of operations by the promoter Subhash Chandra and his forthcoming appointment as the managing director has ushered in a phase wherein several changes are being initiated in every area of operation. Post CAS, the business and the revenue profile is also changing for the better with higher reliance on the stable pay revenues in the domestic and international arena."

Majumder also added, "It is a good sign that Zee is also exercising caution and restraint in the new programming acquisitions (non-film based programmes) other than the high-cost films slated for the Thursday night premier slots. In fact, the effective cost for the Zee Network has not been affected to the fact that the channel has been interspersing the new programmes with the recycled ones from his archives."

"However, the scrip had a heady run on the stock market since September 2001. From the Rs 80-90 levels, it increased to Rs 180-190 before settling down at the current level of around Rs 100. However, in the post-CAS scenario, the intrinsic value of the scrip should have placed it at about Rs 135," Majumder stated.

The MOSt Inquire report also states that there would be no adverse implication for Zee Telefilms due to the riders attached to recent revision of Star's bouquet rates. The report claims that the Star move cleared the decks for an upward revision of the Zee-Turner bouquet. Subsequently, Zee has taken the plunge and announced what is clearly a significant hike in its package price from Rs 42 to Rs 50 for the complete bouquet of 16 channels, effective 1 January 2003. The report states that this move will grow Zee's paid subscriber base apart and help it to grow in value and volume terms.

Majumder added, "The recent trends indicate that the ratio of subscription revenues to advertising revenues is undergoing a shift. In FY01, the advertising revenues and subscription revenues were 70.8 percent and 20.8 percent respectively. By FY03, the advertising revenues and subscription revenues will be 56.4 percent (estimated) and 40.1 percent (estimated) respectively. The EBITDA as a percentage of the net sales has also gone up from 25.6 percent in FY01 to 33.5 percent in FY03 (estimated)."

The MOSt Inquire report also stated that the inclusion of new channels in the Zee-Turner bouquet will make the Zee offering more attractive vis-à-vis the competitive bouquets. The Zee-Turner bouquet will have a variety of channels and genres. However, the Zee-Turner bouquet doesn't have any sports channel or infotainment/educational channel.

The report also estimates that Zee's domestic pay revenues would grow to Rs 2.4 billion in FY04, a growth of 52 percent over the firm's FY03 estimate of Rs1.6 billion. With this, the share of subscription revenues to total revenues would increase to 40% in FY03 and to 44% in FY04.

The report also stated that the flagship channel Zee TV's share in ad revenues as well as total revenues had been witnessing a sharp decline in recent times. This was likely to bring down the concentration risk in Zee's revenue-mix.

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