 "Zee Entertainment: Higher taxes drag profit")
After eight quarters of profit growth, Zee Entertainment in the December 2015 quarter (Q3) posted a 10.5 per cent year-on-year (y-o-y) dip in net profit. Tax cost at Rs 165 crore, up 45 per cent y-o-y, dragged Zee’s earnings.
While guiding overall tax rate at 34 per cent going forward, Mihir Modi, chief financial officer of Zee, says cost was higher in the quarter under review due to higher domestic income and easing of the Minimum Alternate Tax benefit in the September quarter. With Zee not meeting the Street’s expectation, its stock fell 3.5 per cent on Friday.
Nevertheless, analysts say Zee’s performance in the December 2015 quarter does not raise an alarm as profit decline was mainly due to tax outflow, while its business fundamentals are still intact. Revenues of Zee jumped 17 per cent y-o-y, while operating profits, too, rose 22 per cent y-o-y, and operating margins jumped 100 basis points (27 per cent).
While advertisement revenues (accounting for 59 per cent of total income) grew 27 per cent, y-o-y, subscription revenue (33 per cent of total income), too, posted 17 per cent y-o-y growth in December 2015 quarter. However, income from other sales and services (syndication sales and film distribution) remain on a weak foot declining 25 per cent y-o-y in the third quarter of FY16. Analysts feel other income in the quarter under review is not strictly comparable to the year-ago quarter as the December 2014 quarter was at a higher base driven by sport events.
The December 2015 quarter once again saw Zee post loss of Rs 15 crore in its sports business, after briefly becoming profitable in the second quarter of FY16. The company retains its pessimistic guidance for this segment.
However, Zee shrunk its operating (mainly content) costs as a percentage of revenues from 66 per cent in the third quarter of FY15 to 60 per cent in the December quarter of FY16. Operating cost increased by only nine per cent in the third quarter of FY16, yet another factor which analysts believe is a positive for Zee as it has managed to keep a check on cost during a festive season quarter.
On the whole, though the market hasn’t been benign on Zee for missing the earnings target, analysts remain bullish as the company maintains its market leadership and profitable track-record in the media space.
While guiding overall tax rate at 34 per cent going forward, Mihir Modi, chief financial officer of Zee, says cost was higher in the quarter under review due to higher domestic income and easing of the Minimum Alternate Tax benefit in the September quarter. With Zee not meeting the Street’s expectation, its stock fell 3.5 per cent on Friday.
Nevertheless, analysts say Zee’s performance in the December 2015 quarter does not raise an alarm as profit decline was mainly due to tax outflow, while its business fundamentals are still intact. Revenues of Zee jumped 17 per cent y-o-y, while operating profits, too, rose 22 per cent y-o-y, and operating margins jumped 100 basis points (27 per cent).
While advertisement revenues (accounting for 59 per cent of total income) grew 27 per cent, y-o-y, subscription revenue (33 per cent of total income), too, posted 17 per cent y-o-y growth in December 2015 quarter. However, income from other sales and services (syndication sales and film distribution) remain on a weak foot declining 25 per cent y-o-y in the third quarter of FY16. Analysts feel other income in the quarter under review is not strictly comparable to the year-ago quarter as the December 2014 quarter was at a higher base driven by sport events.
The December 2015 quarter once again saw Zee post loss of Rs 15 crore in its sports business, after briefly becoming profitable in the second quarter of FY16. The company retains its pessimistic guidance for this segment.
However, Zee shrunk its operating (mainly content) costs as a percentage of revenues from 66 per cent in the third quarter of FY15 to 60 per cent in the December quarter of FY16. Operating cost increased by only nine per cent in the third quarter of FY16, yet another factor which analysts believe is a positive for Zee as it has managed to keep a check on cost during a festive season quarter.
On the whole, though the market hasn’t been benign on Zee for missing the earnings target, analysts remain bullish as the company maintains its market leadership and profitable track-record in the media space.