Zee Entertainment Enterprises Ltd
(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.