Zee Entertainment Q2 Results Review - Weak Revenues, Healthy Margins, Sustainability Key: Dolat Capital

Dolat Capital Report

Zee Entertainment Enterprises Ltd.’s Q2 was mixed with soft ad revenues (-18% YoY, -4.3% versus estimate) but healthy Ebitda (-3.5% YoY, +18% versus estimate) led by cost saving. Adjusted profit after tax dropped by 21% YoY (+21% versus estimate) due to lower other income.

After five consecutive years of Ebitda decline (FY19-24), we expect a rebound in FY25-26E. Also healthy free cash flow for the fifth consecutive quarter is another positive.

We believe Zee’s financials shall benefit from-

1. a likely improved ad outlook (due to supportive base),

2. reduced digital losses and

3. cost curtailment.

That said, potential events like change of management or M&A which we were anticipating, seems unlikely.

We reduce our FY25-27E EPS estimates by 6/5/3% to factor weaker revenues. Past five quarters improvement in C&CE is a positive but-

1. potential contingent liabilities,

2. impending competition from merger of TV18-Star to marginalize peers,

3. continuity of existing MD-CEO raises the risk of capital mis allocation for a future date.

Retain ‘Buy’ rating with revised target price of Rs 175 at 16 times H1 FY27E EPS (versus Rs 180 earlier). Our Buy is driven by recent improvement in margins, C&CE, steep price correction and element of hope.

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