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ZEE Entertainment

Zee Entertainment FY2009 annual report analysis—positives and negatives.

Positives.
ZEEL’s FY2009 debtors day have reduced considerably to 106 days from about 116 days in FY2008/
2HFY09 was an extremely challenging period for the broadcasting sector with advertisers searching for discounts and extended credit periods.
Large one-offs (gains and losses) in FY2009 cloud the core profitability of the franchise, which remains robust.

Negatives.
ZEEL’s operating cash flow position weakened considerably in FY2009 over FY2008 despite (1) robust book profits and (2) control over receivables.
The large increase in investments (Rs2.1 bn) in film production, film library rights and sports rights in FY2009 as representative of competitive cost pressures on ZEEL.

DCF-based target price works out to Rs170 - largely due to DCF roll forward and improvement in ZEEL’s receivables position. ZEEL stock seems fully valued at 21.6X FY2010E and 17.7X FY2011E .EPS estimates and risk-reward balance seems to be in favor the former. So investors can use the upswing to book profits.