Zee Q1 Review: Sports Could Bring Viewers Back, But Ads Remain A Problem, Says Citi

Zee Entertainment Enterprises Ltd. reported a sharp drop in profitability for the June quarter as weaker advertising revenue and higher investments weighed on earnings, even as subscription growth remained strong. Citi retained its Sell rating on the stock but raised its target price to Rs 80 from Rs 75, saying a recovery in advertising will be crucial for margins to expand.

The brokerage expects Zee's return to sports through properties such as FIFA and other football events to be strategically positive because sports can drive reach and create opportunities for advertising recovery. It remains cautious about the company's ability to translate that reach into better profitability, given weak ad trends, higher investments and competitive intensity.

Citi said the company remains optimistic about the festive season, when advertising demand could improve. It plans to watch how effectively Zee converts its sports investments into revenue and whether advertising begins to recover.

ALSO READ: Zee Entertainment Q1 Results: Profit Nearly Halves As Ad Revenue Slumps 16%; Subscription Income Up

Zee Entertainment Q1 (Cons, YoY)

• Net Profit down 47% to Rs. 76 crore versus Rs. 144 crore 
• Revenue up 4.5% to Rs. 1,908 crore versus Rs. 1,825 crore 
• Ebitda down 57.7% to Rs. 101 crore versus Rs. 239 crore 
• Ebitda Margin at 5.3% versus 13.1% YoY
• Ad Revenue down 12% to Rs. 671 crore versus Rs. 759 crore
• Subscription Revenue up 16% to Rs. 1,137 crore 

Consolidated net profit fell 47% year-on-year to Rs 76 crore from Rs 144 crore, while revenue rose 4.5% to Rs 1,908 crore. Advertising revenue declined 12% to Rs 671 crore, down from Rs 759 crore a year earlier. Subscription revenue provided some support, rising 16% to Rs 1,137 crore.

Profitability took a much bigger hit. EBITDA fell 58% to Rs 101 crore from Rs 239 crore, while the EBITDA margin narrowed to 5.3% from 13.1% a year earlier. Citi said the quarter showed strong subscription growth and momentum in Zee's digital business, but advertising remained the key concern.

At around Rs 94.45 on August 10, Citi's revised target of Rs 80 implies roughly 15% downside. Its bull case sees the stock at Rs 110, while the bear case places it at Rs 55.

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