Investors should hold onto Zee Entertainment till end of fiscal

MUMBAI: One of the largest media and entertainment companies Zee Entertainment Enterprises continued with its strong performance in the December 2012 quarter on the back of strong advertising revenues and increasing digitisation of media industry.

In the December 2012 quarter, the company's net profits showed stupendous growth of 42 per cent in its net profits to Rs194 crore in comparison with same quarter last year. Also the company's net sales grew to Rs938 crore in the December 2012 quarter, recording growth of 26 per cent on a year on year basis.

One of the chief reasons for the sharp improvement in the company's advertising revenues can be attributed to timely increase in advertising rates and the full impact of increasing advertising of festive season.

Beside this, being an established player with an extensive reach through long distribution, the company also benefited from rapid digitisation of the media industry. The company's subscription revenues showed growth of 25 per cent to Rs 409 crore in comparison with the same quarter last year. The company's sports business losses were reduced to Rs8.6 crore in the December 2012 quarter.

Going ahead, due to investment initiatives such as India.com, Ditto TV, Ten Gold, Zee Alwan and Zee Bangla Cinema would increase its operating costs. It is estimated that the company has invested close to Rs100 crore in these initiatives. The company, however, would be one of the chief beneficiaries of the second phase of digitisation drive. Through its distribution ventures MediaPro and Ditto TV, the company's subscription revenues are expected to show high growth.

According to a Bloomberg's compilation of analysts' estimates, 60 per cent of analysts believe that the company's stock has scope for further upside from about 41 per cent appreciation in the last six months. These analysts believe that the company's stock would touch Rs249 from at present Rs228.

An Edelweiss report recommends buy on the company's stock. It says, "ZEE will be the biggest beneficiary from digitisation and remains our top pick in media.

Sturdy free cash flow generation, ~INR11.6bn net cash, minimal debt and an increasing payout are key positives. At CMP, the stock is trading at P/E of 32.0x and 27.2x FY13E and FY14E earnings, respectively. We maintain 'buy' on the company's stock." Investors should hold onto the company's stock till the end of the present fiscal.