Zee has shown superior ad?revenue growth over the last five quarters; it was +29% in FY16 vs. our estimate of an industry growth rate of 15?16%. This outperformance mainly came from market share gains in the regional space and the launch of its second Hindi GEC channel. Despite softness in FMCG ad spends (the sector contributes 50?55% of total TV ad revenues), we believe there are enough drivers for Zee’s ad revenue growth rate to be higher than the industry’s, including: (1) market?share gains in the Tamil GEC space, (2) monetisation of Zee Anmol (Zee’s Hindi GEC FTA channel), and (3) launch of a new/movie channel in the regional space. We estimate Zee’s ad revenue CAGR at 19% in FY16?18.

Valuation: Driven by consistent outperformance in ad revenue, Zee’s 12?month forward PE multiples have rerated to 36x vs. a five?year average of 26x.  We believe that the company will sustain premium valuation driven by – (1) industry?leading ad revenue growth, and (2) robust subscription revenue growth translating into an operating?margin expansion of 200bps over FY16?18. We maintain our BUY rating with an increased TP of Rs 590 (vs. the earlier TP of Rs 540), which is based on 35x FY18 EPS.