>ZEE ENTERTAINMENT ENTERPRISES (ICICI SECURITIES)

POSITIVES PRICED IN

Zee Entertainment Enterprises’ (ZEEL) flagship channel, Zee TV, has shown remarkable improvement in ratings, leading to the recent outperformance by the stock. But competition in Hindi general entertainment channel (GEC) space continues to be high. The likely fund infusion in Dish TV can improve ZEEL’s working capital, though we expect the infusion to have limited impact on ZEEL’s long-term valuations in spite of the move boosting sentiment. Sustained improvement in market share will be the key driver for stock performance.

We downgrade ZEEL to HOLD from Buy on account of the recent outperformance versus the broader markets. We raise target price to Rs190/share from Rs152/share based on 20x FY10E P/E, which is at 20% premium to the Sensex’s current P/E. Historically, ZEEL has traded at 40-80% premium to the Sensex at a time when Zee TV was a clear tier-I GEC player with relatively stable viewership share and lower competition. Our target price implies no upside from the current
market price of Rs192/share. We recommend profit booking in ZEEL.

■ Improvement in Zee TV’s GRP strong but competition remains. Zee TV has continued its improvement in GRP share and has moved to be a strong contender for #1 spot among Hindi GECs from a poor #3. However, the intense competition in the Hindi GEC space will continue due to the entry of new players and cannibalisation of viewership share by cricket & regional channels.

■ Fund infusion in Dish TV to have limited impact on ZEEL’s long-term valuations. The premium of Dish TV’s shares to partly paid-up rights provides its promoters an opportunity to reduce their stake so as to pay the remaining Rs8.1bn for the rights. The fund infusion in Dish TV by the promoters and the proposed FCCBs for up to US$200mn will help improve ZEEL’s working capital, but the fund infusion will have limited impact on ZEEL’s long-term valuations.

■ Downgrade ZEEL to HOLD from Buy on account of the recent outperformance of the stock versus the broader markets. We raise target price to Rs190/share from Rs152/share based on 20x FY10E P/E, which is at 20% premium to the Sensex’s current P/E. Our target price implies no upside from the current market price of Rs192/share. We recommend profit booking in ZEEL.

To see full report: ZEE ENTERTAINMENT