Amalgamation of Regional Channels Biz Will Enhance Revenue
THE stock of Zee Entertainment Enterprise has fallen by over 27% in the last 10 trading sessions, much steeper than the 9% drop in the Sensex. And, its December 2010 quarter performance has not offered any reassurance to investors. In the coming quarters, however, amalgamation of its rapidly growing regional channels business may provide some cushion to its profits.
A major cause of worry is the depressed performance of its sports division, which accounts for over 20% of the total revenue. In the December 2010 quarter, the division reported a loss despite the Asian Games and cricketing events. Of the sports revenue of . 166 crore, . 70 crore came from premature termination of sporting events rights. Excluding this, the actual revenue from the sports business was . 96 crore, much lower than its cost of 99 crore. This means that the company incurred a loss of . 103 crore in the December 2010 quarter.
The other factor that disappointed analysts' expectations was that the company failed to match the expected growth in its net profit, mainly due to poor sports revenue.
In the December 2010 quarter, the company's subscription revenues increased by 14% on a year-on-year basis to . 281 crore. Its direct-to home (DTH) division is gaining traction, with revenue rising by 30% to . 82 crore in the December 2010 quarter on a year-on-year basis. There has been a rapid adoption of DTH technology since it offers better picture quality. It is estimated that every month, 1 million subscribers adopt the DTH technology. Currently, there are about 30 million DTH subscribers. This rapid growth is likely to continue in the coming quarters for most broadcasting companies.
At the consolidated level, the company's revenue increased 55% to . 824 crore in the December 2010 quarter. Its net profit jumped by a meagre 6% to . 155 crore. In the March 2011 quarter, the management is confident of reporting a revival in the sports division due to events such as NBA Basketball and cricket matches. The amalgamation of its regional channels would also play a key role in enhancing revenues.
