Zee News

Zee News- well diversified, reasonable financial discipline, news genre to see healthy advertiser interest in an otherwise cautious environment.

ZNL has three driver channels - Zee Marathi, Zee Bangla and Zee News - making up close to 70% of its total advertising revenues. This reduces the risk of overdependence on one property and ensures a well diversified revenue stream, unlike other competitors in broadcasting.

Subscription revenues- 26% CAGR over FY08-10E.
Pay revenues- a counter cyclical growth opportunity, expect domestic subscriptions to grow led by increasing DTH penetration.
Going forward over FY08-10E the subscription revenues are expected to grow at a 26% CAGR. The pay revenues will likely be a strong growth driver for ZNL financials along with ad revenue contributions from existing channels.

Margins to largely hold over FY08-10E despite new investments and slowing growth. Stable ratings and breakeven of new properties may support.
Earnings growth for ZNL, is likely to be driven by revenue momentum due to stable ratings for its assets and also currently loss-making businesses contributing to the bottom line. Of the current loss-making ventures, Zee Telugu is expected to breakeven in FY09E while Zee Kannada may follow in 1HFY10E, as per management guidance.

Key Concerns:
A sharp slowdown in the economic growth trajectory, which will impact advertising revenue growth and company financials negatively.
Loss in ratings and competitive positioning.
Hyper-competition impacting player and industry profitability negatively Lower than estimated pick-up in the subscription revenue stream.

Valuations look okay, given no further material deterioration in business fundamentals. They also appear favorable vis-à-vis the growth on offer and also on comparison with peers.
At 12x FY10E EPS ZNL is trading at reasonable valuations with respect to the
growth on offer (28% EPS CAGR over FY08-10E) and also relative positioning of its bouquet and resilience of target markets.
Reasonable Q3 numbers, above industry growth rates and reasonable financial discipline validate it a DCF based price target of Rs.41.