Zee Entertainment Enterprises Ltd. share price target

Zee Entertainment (Zee) reported a weak set of numbers as ad revenue decline percolated to the EBITDA and bottomline. Overall revenues came in at | 2049 crore, down 5.5% YoY, impacted by advertisement revenues, which declined 15.8% YoY. Domestic ad declined steeply by 15.7% YoY owing to conversion of FTA channels into paid, high base and overall weakness in ad environment due to macroeconomic challenges. Overall subscription revenues grew 15.4% YoY, led by 21.7% YoY growth in domestic subscription to | 632 crore, driven by tailwinds of NTO. EBITDA...

22 January 2020 3QFY20 revenue momentum was hit by weak consumer advertisement spends in a slowing economy and higher expenses, which dragged margins; the same trend is expected to continue for another quarter. Zee Entertainments (ZEEL) overall revenue declined 6% YoY to INR20.5b (5% miss) on account of lower-than-expected ad revenues. Ad revenue declined 16% YoY to INR12.3b (6% miss), led by decline in ad spending by advertisers. Domestic ad revenue was down 16% YoY as volume growth for consumer companies declined. Subscription revenue grew 15% YoY to INR7.1b (in-line), with domestic segment witnessing 22% YoY growth, which was offset by 17% decline in international subscription revenues. EBITDA at INR5.7b (6% miss), declined 25% YoY; EBITDA margin plummeted by 720bp YoY and stood at 27.6%, partly due to rise in other expenses. ZEEL reported long-pending trade receivables worth INR7.5b from Dish TV and Siti Cable, which has now been given a revised recovery plan spanning 12-24 months.

One key positive takeaway form the stake sale was removal of overall stock price led volatility owing to pledge issue. However, we note that sale to financial investors was a tad disappointing as strategic investors coming in would have added value to the stock. On the operating front, the aggressive spending to build a content library as well as related party dues remains a spoiler. Near term concerns include softer ad outlook due to macroeconomic challenges as well as possible risks of tweak in NTO policies. Post the pledge overhang removal, we upgrade the stock to HOLD...

Stake sale on track, however debt repayment still a concern ZEEL's promoters recently announced roping in Invesco Oppenheimer for an 11% stake sale worth Rs. 4,224cr. The company further revealed that over 90% of promotors' remaining holdings of 22.4% were pledged with mutual funds and other lenders. An amount of over Rs. 7,000cr owed to the MFs was due by September-end, but the parties have agreed to provide another six months extension. Additionally, in an update, Russia's VTB Capital, acting on behalf of certain lenders, recently disclosed that it has secured rights of 102mn shares (~10.7% stake) in ZEEL held by Essel Media...

Zee Entertainment overall operating performance was weak given the muted domestic ad growth. Revenues came in at | 2122 crore, up 7.3% driven by 26.8% YoY growth in domestic subscription to |646 crore which was driven by better monetization on account of implementation of New Tariff order. Domestic advertisement was muted at | 1225 crore (up 1.4% YoY), owing to dual impact of conversion of FTA channels into paid and overall weakness in ad environment due to macroeconomic challenges. EBITDA came in at | 692.9 crore, up 2.9% YoY, while consequent margins came in at 32.7%...

revenue increased 7% YoY to INR21.2b (4% miss) on account of strong 19% domestic subscription growth, partly offset by subdued 1% ad revenue 17 October 2019 growth. EBITDA grew by a mere 2.5% YoY to INR6.9b (6% miss), with the margin shrinking 150bp YoY to 32.7% due to a 23% increase in production expenses. INR1,700m toward ICD was assigned to related parties, as the amount was not received but fully written off. Subsequently, PAT increased by 7.1% YoY to INR4.1b. For 1HFY20, revenue increased by 10% YoY to INR41.3b, while EBITDA/PAT grew YoY 9%/33% to INR13.5b/INR9.4b.

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...