Zee's valuations have turned attractive. However, a recovery in domestic advertisement revenue and a favorable outcome in ongoing litigation for ICC rights with Star remain key for rerating.
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Motilal Oswal Report
Zee Entertainment Enterprises Ltd.'s revenue continued the declining trend with a 3% YoY dip (-1% QoQ; 5% miss) due to continued softness in domestic advertising revenue (-11% YoY) and lower revenue from other sales and services (-57% YoY).
However, Zee's strong control over costs and a further reduction in Zee5 losses led to a 1%/67% QoQ jump in Ebitda/adjusted profit after tax (6%/30% beat).
Management indicated that advertising revenue pick-up in Sep'24 could not be sustained as the boost from the festive season was offset by a broad-based consumption slowdown, which led to lower ad spends from FMCG companies.
Zee aspires to improve Ebitda margins to the 18-20% range by FY26. However, management indicated that growth recovery remains the key lever for further margin improvement.
We lower our FY25-27E revenue/Ebitda by 2-3% due to weaker growth in domestic ad revenue. We build in a CAGR of 4%/21%/34% in revenue/Ebitda/PAT over FY24-27.
Zee's valuations have turned attractive. However, a recovery in domestic advertisement revenue and a favorable outcome in ongoing litigation for ICC rights with Star remain key for rerating.
We reiterate our Neutral rating with a target price of Rs 130 (based on 12 times FY27E P/E).
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