Zee Entertainment Enterprises Ltd. share price target

Ad in FY21 to be washout; stable subscription a solace Zee expects the mix of macroeconomic challenges, Covid-19 shock to impact sharply with about two-third of ad revenues loss in Q1, worst case ad revenue fall of 28-30% in FY21. It expects some recovery by Q2 end aided by festive season beginning and complete availability of new programming (currently operating at ~60-70% in Hindi, ~80-90% in regionals (ex-Tamil)). We bake in ~20% decline in ad revenues, followed by ~25% growth in FY22, on a depressed base. On the subscription front, given the impact of...

Although the investment in SugarBox pushes Zee's digital reach, we believe it is ill-timed considering it is not in the company's core operations and given the already existing cash flow woes. Also, the break-even period is longer. Hence, we remain cautious on the SugarBox investment by Zee Entertainment. Zee's inventory and related party receivables remain high....

Bracing for washout FY21 but FY22 may be bumper Ad revenues to be hit hard by Covid-19 in FY21 Advertisement revenues of broadcasters have been under pressure in FY20 on account of macroeconomic challenges. Going into FY21, the Covid-19 impact is expected to result in a washout April, 2020 followed by a slow recovery and normalisation only by H2FY21 led by a benign base and gradual recovery in economy. April revenue hit will also be on account of a steep loss of market share of most GECs to Doordarshan that is now thriving...

Zee Entertainment Enterprises Ltd is India's largest vertically integrated media & Entertainment Company. The company started as content supplier for Zee TV now has portfolio that includes India's leading entertainment channels. The company's portfolio consists of brands like Zee TV, Zee Cinema, Zee Music, Zee Caf, Zee Smile, Zee Action, Zee Premiere, ETC, ETC Punjabi, TEN Sports, Zee Studio, Zee...

Haryana, Himachal Pradesh, and Delhi. With the launch of Zee Punjabi, ZEEL's regional footprint has expanded to 9 languages. Movie channels - Zee Thirai and Zee Biskope, will enhance ZEEL's regional movie portfolio in the markets of Tamil Nadu and Bihar, respectively. The network is preparing for the launch of 2 more regional channels in the next few months. Our regional portfolio had mixed performance during the quarter. We maintained leadership position in the Marathi, Bangla and Kannada markets, with Zee Kannada further strengthening its leadership position, widening the gap over the nearest competitor. Viewership shares in Marathi and Bangla markets declined during the quarter. While Zee Tamil improved its viewership share, Zee...

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%...