Zee En­ter­tain­ment En­ter­prises Ltd

Money Times - - Stock Watch - By Amit Ku­mar Gupta

(BSE Code: 505537) (CMP: Rs.539.75) (FV: Re.1) (TGT: Rs.600+)

Zee En­ter­tain­ment En­ter­prises Ltd (ZEEL) is a me­dia and en­ter­tain­ment com­pany that pro­vides broad­cast­ing ser­vices. It op­er­ates through two seg­ments - Con­tent and Broad­cast­ing. It of­fers con­tent in mul­ti­ple lan­guages and of­fers ~38 in­ter­na­tional and 30+ do­mes­tic chan­nels. It has a li­brary that houses over 2,22,703 hours of tele­vi­sion con­tent. It holds rights to ~3,820 movie ti­tles. Its brands in­clude Zee TV, Zee Cinema, Zee Ac­tion, Zee Clas­sic, Zee An­mol, Zee Cafe, Zee Stu­dio, Zee Salaam, Zing, ETC Bol­ly­wood, Zee Q and Zindagi. Its range of of­fer­ings in the re­gional lan­guage do­main in­clude chan­nels such as Zee Marathi, Zee Talkies, Zee Bangla, Zee Bangla Cinema, Zee

Tel­ugu, Zee Kan­nada, Zee Tamil and Sarthak

TV. Its high def­i­ni­tion of­fer­ings in­clude Zee

TV HD, Zee Cinema HD, & TV HD, Zee Stu­dio

HD, Zee Cafe HD, & pic­tures HD, Ten 1 HD and Ten Golf HD. It op­er­ates in 170+ coun­tries.

ZEEL’s ex-sports rev­enue rose 7% YoY led by do­mes­tic ad and sub­scrip­tion rev­enues. Con­sol­i­dated rev­enue fell 7% YoY to Rs.15.8 bn. Con­sol­i­dated EBITDA stood at Rs.4.9 bn

(flat YoY, 4% beat) with a 31% mar­gin (+210 bps YoY) de­spite lower rev­enues, led by 25%

YoY sav­ings in con­tent cost. PAT surged

148% to Rs.5.9 bn (est. of Rs.3 bn). PAT, af­ter ad­just­ing for Rs.1.3 bn ex­cep­tional gains from sports, Rs.1.6 bn other in­come from eq­uity reval­u­a­tion and re­ver­sal of Rs.81 mn

in­ter­est pro­vi­sion, jumped 21% YoY to Rs.2.9 bn (7% miss). Do­mes­tic ad rev­enue grew 6% YoY (ex-sports, RBNL and IWPL) to Rs.9.3 bn, im­pacted by the GST. Over­all ad growth was a mea­gre 3% YoY to Rs.9.9 bn due to 34% fall in in­ter­na­tional ad rev­enues on cur­rency ap­pre­ci­a­tion and re­gion­spe­cific is­sues. Do­mes­tic sub­scrip­tion rev­enue ex-sports grew 7% to Rs.4 bn as TRAI tar­iff or­der de­layed con­tract re­newals. Over­all sub­scrip­tion rev­enue fell 14% YoY to Rs.5 bn (est. of Rs.4.8 bn). With the on­set of the fes­tive sea­son, do­mes­tic ad growth re­bounded strongly to the nor­mal level with broad-based re­cov­ery in­clud­ing FMCGs and e-com­merce. The com­pany’s strong rat­ings should be main­tained with an in­crease in orig­i­nal con­tent of the flag­ship chan­nel to 32 hours from 28 hours by Q4FY18E. We ex­pect 15% ad rev­enue growth in H2FY18 and 16% in FY19E. Sub­scrip­tion rev­enue should grow at 12%/14% in H2FY18/FY19E. We broadly main­tain our ex-sports rev­enue growth of 11%/16% for FY18/19E. High orig­i­nal con­tent, launch of OTT app – Z5 and re­brand­ing Zee TV should re­duce the room for op­er­at­ing lever­age. Thus, we cut EBITDA mar­gin by ~300 bps to 32.6% in FY19E. This is still above the man­age­ment’s guid­ance of 30%+ mar­gin, build­ing op­er­at­ing lever­age from high rev­enue growth and & TV breakeven in two quar­ters. We have as­signed 35x P/E on Septem­ber 17 EPS v/s 32x ear­lier, given the com­pany's steady im­prove­ment in view­er­ship share and a strong re­cov­ery in the ad mar­ket.

Tech­ni­cal Out­look: The ZEEL stock looks very good on the daily chart as a medium-term in­vest­ment pick. It is mov­ing in the trad­ing range of Rs.480-540. A close above Rs.560 with vol­umes will lead the rally to Rs.575-590 on the daily chart. The stock trades above all im­por­tant DMA lev­els on the daily chart. Start ac­cu­mu­lat­ing at this level of Rs.539.75 and on dips to Rs.510 for medium-to-long-term in­vest­ment and a pos­si­ble price tar­get of Rs.600+ in the next 12 months.

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