Zee Entertainment rating under review - Motilal Oswal

Zee Entertainment Enterprises (Z IN; Mkt Cap USD2.5b, CMP Rs115, Under Review)

ZEE's 3QFY11 PAT was below estimate due to higher than expected operating cost and EBITDA loss in the sports business. Adjusted PAT down 9.6% QoQ to Rs1.14b v/s estimate of Rs1.56b.

ZEE recorded adjusted EBITDA loss of Rs1.03b in the sports business in 3QFY11. EBITDA declined 18.2% QoQ (25.4% below estimate) to Rs1.54b.

Advertising revenue grew 62.4% YoY and 6.7% QoQ on a reported basis. While EBITDA margin was 20.4%, EBITDA margin ex sports business stood at 39%.

Given higher loss in the sports business and potential margin decline in the non-sports business, we are cutting our earnings estimates by 13.6% for FY11, 16.3% for FY12 and 26.9% for FY13. Motilal Oswal is revising the rating to Under Review (Buy earlier) given continued negative surprises, low visibility in the sports business and potential margin headwinds in the non-sports business. The stock trades at 18.8x FY12E EPS and 17.2x FY13E EPS.

Source : Equity Bulls

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