MUMBAI: Riding high on subscription revenue and a bumper advertising revenue growth, Zee Entertainment Enterprises Limited (Zeel) posted a 40.5 per cent jump in fiscal-third quarter net profit to Rs 1.93 billion from Rs 1.37 billion a year earlier.

Zeel?s operating revenues grew 26 per cent to Rs 9.3 billion in the third quarter from Rs 7.4 billion a year earlier.

"Zeel?s Q3 results are better than market estimates. This is evident on both ad and subscription revenue fronts," said a media analyst.

Ad revenue

Belying the overall slowdown in advertising spending due to a sluggish economy and the subdued festival season in November, Zeel?s advertising revenue grew 28.8 per cent to Rs 5.09 billion from Rs 3.95 billion a year ago.

Advertising contributed to 54 per cent of the company?s total revenue. The d growth was aided by an increase in market share in many of Zeel?s channels.

Subscription revenue

The broadcaster?s subscription revenue in the third quarter ended 31 December stood at Rs 4.09 billion, up 25.6 per cent over Rs 3.26 billion a year earlier. Its domestic subscription revenues in the third quarter grew 33.2 per cent year-on-year to Rs 2.9 billion, while international subscription revenue increased 9.4 per cent year-on-year to Rs 1.13 billion.

The company said subscription revenues are not comparable since the accounting treatment of Media Pro, a distribution joint venture between Star India and Zeel, has changed from the fourth quarter of the previous fiscal.

Zeel?s revenues from other sales and services head which includes syndication sales, play-out and transmission facilities decreased 10 per cent to Rs 197 million in the third quarter from Rs 220 million a year earlier.

Ebitda growth

The broadcaster?s operating profit rose 27.6 per cent to Rs 2.6 billion in the third quarter from Rs 2.04 billion a year earlier. Its operating profit margin in the third quarter was 27.8 per cent while the net profit margin was 20.6 per cent.

Going forward, margins could improve on higher subscriber revenue, lower sports losses and new investments turning around. However, the company would continue to invest on content.

Zee chairman Subhash Chandra said, "Indian economy has been in a vicious circle of slowing growth, high inflation and stalled capex. Advertising spends have been impacted this year due to this slowdown. The first three quarters of this fiscal have been good for Zee with a strong performance relative to the industry and competition. With one quarter to go, we are looking forward to a strong growth this year. The highlight of this quarter has been the strong growth momentum in advertising revenues despite subdued spends. The performance illustrated that our investment in content is yielding good returns. We continue to invest to create compelling content across genres."

Operating cost up

Zeel?s total expenses in the third quarter stood at Rs 6.7 billion, an increase of 26 per cent from Rs 5.38 billion a year earlier.

The company?s operating cost jumped 22 per cent to Rs 4.18 billion in the third quarter from Rs 3.4 billion a year earlier.

Zee?s employee cost rose 22.4 per cent to Rs 895 million in the third quarter from Rs731 million a year earlier, while selling and other expenses jumped 37 per cent to Rs 1.69 billion from Rs 1.23 billion a year earlier.

During the quarter, the company had launched it kids channel ZeeQ besides investing in new programmes along with increased marketing activities.

Zeel MD & CEO Punit Goenka said, " The subscription revenue during the quarter is highest ever and with digitisation roll-out (it) will (further) improve in the medium term.?

?Our network viewership saw a successful mix of new and returning shows. Overall, I am confident about the next 12 months and continue to make further investments in new content and channels. While these new channels will have an impact on the operating margins in the short-term, they will enhance our performance in the medium term,? Goenka said.

Sports business

Zeel?s revenue from sports business in the third quarter was Rs 1.07 billion while incurring an expenditure of Rs 1.16 billion.

In the third quarter of previous year, Zeel?s revenue from sports business was Rs 1.66 billion which included a one-time fee of Rs 700 million on pre-mature termination of the commercial contract with All India Football Federation (AIFF). The company had incurred expenditure of Rs 1.99 billion on sports business a year earlier.

The company expects to contain the sports losses under Rs 1 billion in Fy?13.

The company said it is yet to realise 1.4 billion from the Board of Control for Cricket in India (BCCI) and hence has not been given effect to in the third quarter results.

In November, a three-member Arbitral Tribunal had held the BCCI guilty of "exploiting its dominant position" for arbitrarily terminating its five-year broadcast rights contract with Zee. The tribunal had asked BCCI to pay Zee about Rs 1.4 billion, including the security deposit of Rs 300 million with interest at 11 per cent per annum from 31 May, 2007, for loss of profit and goodwill.