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Poor results drag Zee down

NetScribes/Rajiv Banerjee

The Zee Telefilms scrip on Monday slipped to Rs 267.25, down Rs 12.85 from its previous close, in early trades on Bombay Stock Exchange in response to the company's results announced at the weekend. Leading domestic brokerages like Motilal Oswal Securities and Dalal & Broacha have put a 'sell' on the scrip.

For the quarter ended December 31, 2000, Zee Telefilms posted a net profit of Rs 321.4 million, compared to Rs 248.6 million in December 1999. Net sales were up 28 per cent to Rs 1.14 billion from Rs 902.9 million in the previous corresponding period.

"Increased sales of programmes to Asia Today Ltd, our Hong Kong-based subsidiary, has enabled us to post a healthy net profit for the quarter," said a senior official at Zee Telefilms. Zee sells various programmes from its bouquet of channels to ATL on a cost plus 15 per cent commission basis.

While higher revenues from the sale of programmes to ATL helped Zee Telefilms register a 29 per cent bottomline growth, the consolidated results of Zee Networks have a different story to tell.

Star TV's Kaun Banega Crorepati (KBC) juggernaut and Zee's own unsuccessful bid to regain supremacy through Sawaal Dus Crore Ka had their impact on the quarterly results - Zee Network reported a 26 per cent dip in net profit to Rs 473.8 million. Total income was up at Rs 2.65 billion for the quarter from Rs 2.42 billion.

"The stand-alone results may be good, but it is the consolidated results that reflect the poor show; the group managed to increase ad revenues only by Rs 13 million year-on-year," said Chirag Shah, media analyst at KR Choksey Shares and Securities. He attributed the dismal growth in revenues to KBC, which lured away advertisers and dealt a blow to Zee's prime time.

Advertising revenues for the quarter remained virtually stagnant at Rs 1.87 billion, compared to Rs 1.85 billion in the previous corresponding quarter. Zee Network's subscription revenues registered a 10 per cent growth to Rs 523.1 million.

"The pay revenues have shown an absolute flat year-on-year growth. This is a direct impact of KBC. Other well-known programmes like Amanat and Koshish - Ek Asha also suffered due to the fall in ad revenues. Higher programming expenses during the qaurter also resulted in a dip in operating margins," said Shubabrata Majumdar, analyst at Motilal Oswal Securities.

While admitting that intense competition was a factor for the drop in net profit, Zee officials cited the cost of various new business initiatives as the other reason. The group's new initiatives include the launch of its English movie channel Zee-MGM, a joint venture with Hollywood's MGM. The company is also in the process of laying down optic fibre cables in four cities for broadband network.

Analysts see no major fundamental positives for the company in the coming quarters. "The Siticable divestment has not materialised for want of a strategic partner. The divestment amount would have enabled the company to go ahead with its optic fibre network in 26 cities as planned initially," said Shah. Ventures like Zee-MGM and the educational channel are still in their infancy and cannot be expected to contribute much to the network's revenues, he added.

"The entire company is undergoing a structural change under the AT Kearney report. Therefore, it is a wait-and-watch for the company," said Majumdar.

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