A good script

Advertising revenues look up in Q3 for Zee Telefilms

Zee Telefilms' consolidated revenues grew at an impressive 21.8 per cent in the December quarter, better than the 17 per cent growth recorded in the first six months of the fiscal.

But last quarter's revenues were propped up by sales of set top boxes worth Rs 14.8 crore, adjusting for which the growth is lower at 17 per cent.

After the December 6 High Court ruling that CAS should be implemented in Delhi, there was a run for set-top boxes in parts of the city.

But now, with the elections round the corner, the government is expected to go slow on the introduction of CAS.

This is clearly a negative for broadcasters like Zee. But for the time being, higher advertising revenues are expected to make up.

Last quarter, advertising revenues grew 7.7 per cent year-on-year, after having fallen 5.5 per cent in the first six months. As a result, the company should now be able to easily meet its guidance of flat growth in ad revenues this fiscal.

Interestingly, the current growth in ad revenues are being driven by sectors like telecom, auto and insurance.

Traditionally high spenders like the FMCG sector have still not increased ad spend, but with the economy improving analysts are hopeful that this trend would soon be corrected.

Subscription revenues grew three per cent sequentially, although domestic subscription revenue was flat at Rs 54 crore.

Margins fell almost 120 basis points, because of higher transmission and programming costs. But despite the higher spend, programming continues to be an issue for the company.

The company's flagship channel, Zee TV, has only a handful of programmes in the top 100 watched shows in the country. What's worse is most of these programmes are Hindi movies, which obviously can't be shown repeatedly to draw the audience.

The company's nearest competitor, on the other hand, has been doing much better since the launch of "Jassi Jaisi Koi Nahin" in September 2003. However, given the relatively low base, ad revenues can be expected to grow on the back of the pick up in the economy.

But the Zee stock has run up quite a bit the past year - since its lows in 2003, it has gained 155 per cent. Given the uncertainty surrounding CAS and the relatively low viewership, the stock is not inexpensive as it now trades at 21 times FY04 earnings.

Shipping Corporation

The upsurge in shipping freight rates due to a revival of both the Indian and global economy has clearly paid dividends for Shipping Corporation of India, and it has reported significantly improved results for the quarter ended December '03.

Riding on the back of a 22 per cent growth in net sales to Rs 731.23 crore in Q3 FY04, SCI's operating profit jumped 79 per cent Rs to 208.6 crore. The momentum was maintained with net profit jumping 75 per cent to Rs 133.2 crore in Q3 FY04.

One important earnings growth driver for the company is its bulk segment which comprises tankers, dry bulk and gas carriers.

For instance, freight rates for Handymax have jumped 66.5 per cent during October - December '03 as compared to the same period last year and that of Aframax have shown a similar rise in Q3FY04.

The benefits of such a large uptrend in freight rates is significant, as its Aframax tankers and Handymax carriers constitute around 45 per cent of SCI's fleet.

Going forward, greater clarity on the divestment front would help to take the SCI scrip a lot higher. The senior management of the company has pointed out that they are considering fleet expansion plans in earnest after a hiatus of almost two years.

This should benefit the company as freight rates in the bulk carrier segment are expected to rule firm, with steel and iron exports to China expected to remain strong.

In the tanker segment, low availability of double-hull tankers has resulted in rising freight rates. In addition, shipyards globally are running at full capacity.

Hence, any sudden influx of capacity will not be a threat to freight rates. Even if new capacities come into the market, any impact on rates will be temporary, since some ships will be due for scrapping as well.

With contributions by Mobis Philipose and Amriteshwar Mathur