CAS might save plunging Zee scrip, say analysts

MUMBAI: The cricket World Cup has taken its toll on Zee, notwithstanding its aggressive promotions that include the Daily Dhoom Megawin Zee promo. The Zee Telefilms scrip has fallen from Rs 97.50 (31 December 2002) to Rs 67.05 (on 28 March 2003) on the Bombay Stock Exchange (BSE); and from Rs 97.55 (31 December 2002) to Rs 67 on the National Stock Exchange (NSE).

On the BSE, today, the Zee scrip opened the day at Rs 68.35, fell by 1.90 per cent to end the day at Rs 67.05. The total volume of shares traded was 820,458. On the NSE, the scrip started the day at Rs 68.05, fell by 1.90 per cent to end the day at Rs 67 with heavy volumes of 1,556,319 traded shares.

However, certain media analysts feel that the company's fortunes should improve as the country heads towards a conditional access system scenario. However, this would be dependent on several other factors.

JP Morgan's latest report (dated 19 March) on the impact of conditional access system, however, claims that it is very difficult to assess the impact of CAS on Zee as its strategy might change with the offtake of encrypted signals. The report has given an overweight status to the Zee Telefilms scrip at the Rs 72-level mark.

The report mentions that in a scenario where Zee (along with the other broadcasters, Star and Sony) remains pay, one cannot expect any downside to Zee's revenues. Additionally, Siticable revenues will get a boost from the revenue sharing with broadcasters, which should give a fillip to Zee's earnings, the report says.

The report also says that Zee currently has a declared subscriber base of around 4.5 million subscribers. This is out of the estimated 30 million people who might effectively be watching the channel.

The report questions as to how many of the 30 million will take Zee channels in the CAS regime. Additionally, another important question is whether it is likely that any, or all, of the major players (and hence Zee) will go free-to-air?

The report also points out that Zee's estimated subscription revenue is around Rs 1.5-1.55 billion for FY03 - much lower than the subscription revenues of its competitors, Sony and Star. Thus, it would hurt these players considerably if they went free-to-air. Zee's management has indicated that they will not go free-to-air. However, the JP Morgan analysts believe that the final company strategy will be decided after the initial CAS rollout.

The report also mentions that a low offtake of encrypted signals will likely lead management to rethink their pay strategy. Options like splitting the flagship channel into a premium pay channel and an FTA channel might surface.

The report concludes that it will be very difficult to predict the impact of CAS till Zee's strategy and that of its competitors is finalised. In a scenario where none of the channels go FTA, there will not be too much of an impact on Zee's revenues. JP Morgan has projected an advertising revenue growth of 5 per cent of 1H FY04 and 8 per cent for 2H FY04.

The report is confident that these figures can be met post a CAS regime. As far as subscription revenues go, growth might slow down in the near term but the long-term prospects are bright (assuming the bouquet remains pay), adds the report.

On the positive front, the JP Morgan report expects to see quite a smart rise in Siticable's revenues from its current levels, given the revenue-sharing mechanism. This should give an additional fillip to Zee's earnings, says the report.

It is time to wait and watch!

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