Bank of America Merill Lynch downgraded Zee Entertainment Enterprises Ltd. to ‘Underperform' from ‘Neutral', due to unfavorable risk-reward, slowing growth estimates and risks of multiple de-rating.
The brokerage sees multiple issues emerging with respect to Zee Entertainment's over-the-top content strategy as the competition in the segment has picked up materially leading the broadcaster to come up with a differentiated strategy.
Additionally, Zee Entertainment runs the risk of losing part of its TV advertising revenue as fast moving consumer goods companies shift focus towards digital spending, the brokerage said.
This has been led by a 13-16 percent decline in estimates for Zee Entertainment's earnings before interest, tax, depreciation and amortisation margin, and 7-10 percent cut in earnings per share estimates.
There's also likely downside risks to its target in the form of faster advertisement growth and sharper margin improvement.
Revised Estimates:
- Ebitda growth for FY18 and FY19 seen at 3 percent and 15 percent, respectively
- Earnings per share to grow at 7-10 percent lower than before to factor in higher investment in OTT
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