>ZEE ENTERTAINMENT ENTERPRISES (CENTRUM)

Inline results despite lower ad revenues

■ Ad revenues plunge 29%: Q1 advertisement revenues fell 29% YoY (13% QoQ) to Rs1,979mn on the back of economic slowdown, shift in advertisers to sports channels during the IPL 2 season and T20 World Cup and increased competition in the GEC space. However, we see an uptick from H2FY10 and believe the worst is over.

■ Subscription revenues still robust: Subscription revenues grew 12% YoY to Rs2,409mn, mainly on account of hefty 88% increase in DTH revenues to Rs467mn. International and domestic non-DTH revenues, which contribute more than 40% to topline, remained flat QoQ.

■ Cost-cutting measures help sustain margins: The 36% QoQ decline in SG&A and other expenses, along with 11% QoQ decline in employee costs, helped the company maintain margin at 24.6% vs 26.6% in Q1FY09. The significant reduction in interest cost helped prop up adj PAT (after minority interest) to Rs1,018mn

■ Upgraded to Buy: We have upgraded ZEEL to Buy, as we expect ad revenues to increase, going forward. Positives also stem from the company’s strong operating performance, sustainable subscription revenues (due to increasing DTH revenues) and improved ratings of flagship channel, Zee TV. We maintain our target price of Rs209, valuing the company at 18.5x FY11E.

To see full report: ZEE ENTERTAINMENT