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Zee Entertainment + Sun TV Upgraded

December 12, 2007

India’s Media Giant Zee Entertainment and South Indian controversial media company Sun TV have been upgraded by brokerage houses.

Zee Entertainment Ltd:
Zee Entertainment overtook Star Plus (Rupert Murdoch’s flagship channel) during prime time for the week ended November 25 2007. Zee Entertainment’s flagship channel’s ratings during prime time of 42%, (higher than 30% across time bands) will reflect in its ad revenues in H2FY08. The fall in TRPs during the 10 pm slot last month was primarily due to the end of its reality show Saregama which ended on October 07. Zee owns the property and will start a new season in mid-2008.

Zee’s flagship channel is the leader between 7:30 to 10 pm prime time slots. In fact Zee’s market share within the prime time is relatively higher at 56% compared to an overall market share of 30% in September 07 (23% in March 07. With Zee no longer involved in the domestic cricket broadcast rights, the sports channels will have a marginal loss in FY08.

Zee Entertainment is expected to report an earnings of Rs 9.03 and Rs 12.04 for FY08 and FY09 respectively. Deutsche sets a 12 Month target price of INR 430 values the company at c35x 1-year forward earnings (03/09E). This price multiple is justified given its c48% net income CAGR over a three-year period FY07E-09E driven by strong advertising revenue growth.

Also bear in Mind, Merill Lynch sets a Target price of Rs 400 on Zee Entertainment while, Kotak retains an underperform rating on the stock of Zee Entertainment with a revised target price of Rs 270.

Sun TV Network Ltd:
Sun TV has entered into a tie-up America’s largest Cable Operator, Comcast (with a reach of 23mn homes out of c100mn US television homes). This is in addition to the tie-up that Sun TV has with Echostar (a direct broadband service platform). Projected subscribers from the US market stands out at 340,000 and this could potentially touch 500,000 subscribers in FY09 providing an upside to earnings estimates.

The broadcast operations will receive a monthly subscription of INR25 per home per month for every DTH subscriber. Maintaining domestic subscription revenues at INR2.1bn for FY09. This tie-up will enable Sun TV to price its content at INR25 per home per month from other DTH operators i.e. Tata Sky, Dish TV, Reliance Big DTH and Bharti.

Sun TV is expected to report an EPS of Rs 10.8 and Rs 13.5 for FY08 and FY09 respectively. At earnings multiple of 35x FY09E earnings estimates, a target price of Rs 500 is set on the stock over the next 12 months.

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