Zee Entertainment Enterprises Ltd. share price target

The promoters of ZEE Entertainment Enterprises Limited (ZEEL) have entered into an agreement with Invesco Oppenheimer Developing Market Fund to sell upto 11% stake in ZEEL for Rs. 4,224 crore, implying a price of around Rs. 400/share (~15% premium to today's closing price). This transaction will provide a financial fillip to initiate the repayment process of promoter level debt. Notably, outstanding promoter debt against shares at Essel Group level remains at Rs. 11,000 crore, including accrued interest till date. Management highlighted that both media...

Zee Entertainment announced that Invesco Oppenheimer Developing Markets Fund (The Fund) has agreed to buy up to 11% stake from promoters, for a total consideration of up to | 4224 crore, implying | 400/share, which represents ~11% premium to last day's closing price. While the deal announcement is positive as it partly allays some concerns on pledge, the total exposure of | 11000 crore as promoters loan against shares implies stake sale in non-media assets (infra) and possibly some more stake sale of Zee, in a time bound manner to fully revoke the pledge....

Domestic advertising growth was considerably lower than the growth in past quarters. ZEE5 global MAUs and DAUs stood at 76.4 mn and 6.6 mn, respectively, in the month of June. ZEEL maintained its position as the #1 all-India television entertainment network. Other income grew 106% to Rs 106.21 crore and interest cost jumped 288% to Rs 20.51 crore. As depreciation grew 20% to Rs 68.99 crore, PBT went up by 40% to Rs 744.34 crore....

Strong domestic subscription business with new TRAI tariff order Company registered 13.3% YoY growth in revenue to Rs. 2,008cr, mainly led by growth in subscriptions business (+36.7% YoY to Rs. 709cr). Domestic subscription revenue soared 46.7% YoY to Rs. 624cr, with the implementation of the new tariff order which boosted per user subscription revenue. However, International subscription revenue remained lackluster (-9.2% YoY to Rs. 85cr). Advertising revenue witnessed slower growth (+3.6% YoY to Rs. 1,187cr), largely affected by conversion of two leading freeto-air channels to pay channels and implementation of the new TRAI tariff order. Domestic advertising revenue was up 4.2% YoY to Rs. 1,132cr, while international...

Ad witnesses impact of conversion of FTA to pay channel During Q1FY20, Zee, along with other key broadcasters, converted its FTA channels into pay. This resulted in 5-6% loss in ad revenues. Furthermore, the company also attributed the weak domestic ad growth to shifting of ad spends due to the cricket world cup. The company expects ad growth revival from H2FY19 driven by festivities. However, we note that the management reiterated its guidance of beating the expected industry ad growth of high single digit to low double digit in FY20. We bake in 11.4% CAGR in ad...

The robust subscription revenue growth of 36.6% YoY is the key highlight of Zee's healthy Q1FY20. Ad revenue growth was a marginal 3.6%, due to FTA channels becoming pay and NTO. Zee's struggle and ambiguity due to promoter stake sale to bail out the Essel group since the past 6-8...

revenue increased 13% YoY to INR20.1b on account of strong 47% domestic subscription growth, partly offset by subdued 4% domestic ad revenue growth. While the implementation of NTO improved channel pricing and supported subscription growth, it also hurt ad growth due to weak viewership and the conversion of FTA channels into pay channels. Nevertheless, EBITDA grew 17% YoY, led by a 100bp margin improvement to 32.9%. Adjusting for the fair value gain, PAT was up 33% YoY to INR4.6b (13% beat). (a) Domestic subscriber revenue is likely to grow by mid- 20% in FY20. (b) Ad growth was soft, but is likely to revive in 2H. The upward reset in subscription revenue due to better channel pricing in NTO is likely to drive healthy 26% subscription growth in FY20. Our channel checks indicate that the ad market remains weak but should revive from the festive season. Revenue/PAT CAGR is estimated at 14/16% over FY19- 21.

Robust ad growth, guides for industry leading growth in FY20 Overall ad growth of 16% was driven by 17.7% growth in domestic advertisement, which was pleasantly surprising considering the NTO led disruptions during the quarter. International ad revenues, however, declined 9.6% YoY to | 60 crore. We note that the management reiterated its guidance of beating the expected industry ad growth of low double digit in FY20. However, it could be challenging amid the transitory NTO led disruption and soft commentary of consumer companies. We build in 13%...

We highlight that Zee's premium valuation has been driven by industry leading ad and subscription growth a function of viewership market share expansion, which currently is clouded by NTO led disruption. We also believe that NTO implementation, apart from providing consumers a choice, has led to higher power in DPO's hands in bundling channels. Zee's absence in base bouquet could be detrimental. Consequent, to revenue estimates, we revise our FY20 earnings downwards by 10.7%. Therefore, we downgrade the stock to HOLD. We introduce FY21 estimates and roll over...

Zee Entertainment (Zee), along with other group companies, witnessed a sharp correction (~27%) in their share price after an article (link) by the media group The Wire alleged that Essel Group were linked to an entity named Nityank Infra that is being investigated by Serious Fraud Investigation Office (SFIO) for deposits of | 3000 crore during demonetisation. With further concerns over group level debt and pledged shares, the shares fell sharply. Through a conference call and stock exchange announcement (link), the company has categorically denied any...