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Dolat Capital Report
Zee Entertainment Enterprises Ltd.'s Q1 FY24 was ahead of estimates driven by higher subscription and other operating income and better margins.
Ad revenue declined 3% YoY. Revenue/Ebitda/adjusted profit after tax were +7.5/-34/-42% YoY.
Impending Sony-Zee merger remains the key trigger.
National Company Law Tribunal will give its order tomorrow with-restpect-to merger. We presume no major hiccups. We presume merger completion shall take another ~three-four million (viz. delisting of Zee and listing of merged entity shares).
These shall lead to a new positive dawn viz. merger synergies, C&CE of ~Rs 90 billion on day one, hopefully cleaned-up balance sheet etc.
Closure of merger coupled with improvising ad outlook, viewership share, losses peaking in digital (off-set by higher losses in sports) are additional positives.
We reduce Zee's earnings per share by 5/11% for FY24/25 (4/6% for merged operations) to factor lower ad growth versus earlier estimates.
Reiterate 'Buy' with revised target price of Rs 320 at 25 times FY25E merged-co EPS (earlier Rs 245 at 18 times FY25E).
Increase in multiple is to factor the near-closure of merger and improvising macros.
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