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1) JP Morgan report:
JP Morgan's Zee Telefilms update dated 28 January 2003 retains
its overweight rating and observes that Zee trades at multiple lower
than the Indian market. It adds that the stock should see its premium
expand going forward with significantly superior growth in earnings
than the market.
The Morgan report states that it isn't changing the 4QFY03 forecasts
as: Zee's costs have been better managed; and Padmalaya Telefilms
results are to be consolidated in 4Q03. It adds that the overweight
stance is underpinned by: improving program ratings; structural
changes lead by legislation in the cable industry; and improving
overseas business. All these factors are very much in place, as
per the report.
The Morgan report expects the momentum in earnings to continue
to improve and be the primary engine for stock performance and premium
expansion. It also states that while Zee's profits were about 15
per cent below expectations, the results beat consensus estimates
by 5 per cent.
The negative surprise came primarily from advertising revenues,
which dropped 9 per cent YoY for Zee (excluding ETC). The report
expects flat QoQ ad revenues and adds that ad revenues are likely
to be weak even in 4Q FY03 due to the World Cup. The report hopes
that there could be an improvement as better ratings shows through
in revenues.
A forex loss of Rs 30 million also impacted Zee's profits in 3Q
FY03, the Morgan report states. On the pay revenue front, Zee's
numbers were in line with expectations and were the key driver of
earnings in the absence of a kicker from ad revenues, growing 42
per cent YoY.
It adds that pay revenues should accelerate further due to a 20
per cent price hike taken in January 2003. Zee's days receivables
declined to 184 days from 198 days in the previous quarter, it notes.
The report recalls that the Zee management reiterated that debtors
would be brought down to 140 days by end FY03. In the conference
call, the management mentioned that the receivables on account of
Buddha films (Rs 1.58 billion) would be paid by end FY03. Additionally,
Zee would likely pay down Rs. 2-2.5 billion debt in the next quarter.
Given the strength in earnings, the Morgan report expects the stock
price to rise from current levels.
2) Motilal Oswal Securities Inquire Research report:
Motilal Oswal Securities' Inquire Research (MOSt) report on Zee's
3QFY03 dated 28 January 2003 reiterates its 'Buy' status with a
target price of Rs 130.
The report states that the three key triggers to stock price performance
in the short term are: free to air bouquet price if fixed at Rs
50-70 per month per subscriber; repayment of Rs 1.6 billion liability
by Buddha Films to Zee; and reduction in debtor days to approximately
150-day levels. In the long term, the report is positive on the
domestic subscription revenue upside post-CAS implementation.
The MOSt report also adds that Zee Telefilms has reported results
lower than expectations. While PAT has been marginally lower than
expected, revenues have been lower by Rs 233 million due to significantly
lower advertising revenues than expected, it states. EBITDA margin
at 35 per cent was also lower than expectation of 37.7 per cent
primarily on account of higher pay channel costs paid by Siticable
to pay broadcasters.
The report maintains that the stock has seen a sharp correction
in the recent past and there isn't any likelihood of a downside
from hereon.
3) Kotak Mahindra Securities report:
Kotak Mahindra Securities' report dated 28 January 2003 states
that Zee reported a strong quarterly performance with a 29 per cent
QoQ net income growth to Rs 688 million aided by a benign accounting
practice on movie amortization.
The report states that the underlying performance is less impressive
as lower programming cost (aided by low amortization of movie costs)
has primarily boosted EBITDA (+34 per cent QoQ to Rs 1.1 billion).
Ad revenues were sluggish at Rs 1.7 billion (+20 per cent QoQ, -2.4
per cent YoY) despite peak festival season and screening of costly
movies.
Domestic pay-TV revenues grew by a disappointing 2.5 per cent QoQ
to Rs 378 million. The Kotak report retain their earnings estimates
and DCF based target price is Rs 100; key risks include failure
to consolidate ratings for mainline channel and lower-than-expected
growth in domestic pay-TV revenues.
The Kotak report also expresses concerns that the fourth quarter
may not look that good. Despite nine-month net income at Rs 1.7
billion versus the full year expectation of Rs 2.07 billion, the
report retains its estimates.
The report also notes that Zee would have to provide for amortization
of movies in 4QFY03 and subsequent quarters without commensurate
revenues. Also, Zee will have to compete with cricket world cup
for advertising dollars during Feb-March period. Finally, it mentions
that Zee's full year tax rate will be above the 26.5 per cent reported
so far according to the management.
4) Merrill Lynch report:
The Merrill Lynch report on Zee Telefilms 3QFY03 dated 28 January
2003 states that he new management has delivered. Zee 3Q PAT Rs
688 million up 32 per cent YoY (6 per cent ahead of MLe), reinforce
the view that strong growth in pay revenues will more than compensate
for its stagnant ad business.
The report believes that while recent stock under performance leaves
scope for appreciation, ensuing cricket World Cup (a once in 4 year
event) would keep pressure on its 4Q ad revs and hence, the stock
price in the near term.
The Merrill Lynch report states that the key positives of 3Q FY03
were: strong EBITDA margin expansion to 35 per cent from 33.9 per
cent in 3Q FY02 led by growth in global pay revenues (38 per cent
YoY) & cost cutting; significant reduction in losses of education
business (down 76 per cent YoY) & turnaround in cable business
(loss to profit in 3Q FY03).
The Merrill Lynch report also mentions that the key shortcomings
of 3Q were: Ad revenues were down 0.7 per cent YoY despite consolidation
of ETC (8.9 per cent excluding it), indicating pressure due to ensuing
world cup; Debtor day down only 3 per cent to 184 days in 3Q from
190 in 2Q; Sales were lower by 8.7 per cent v/s MLe as Zee didn't
consolidation recently acquired Padmalaya in 3Q (will start from
4Q).
Also read
Zee Group net profit at
Rs 709m, up 36 per cent
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