Zee Entertainment's Target Price Cut On Bleak Recovery Outlook

Brokerages reduced the target price on Zee Entertainment Enterprises Ltd. as they expect recovery to be uncertain with revenue declines.

Citi Research maintained a 'sell' and reduced the target price to Rs 175 apiece from Rs 180 apiece, assessing recent demand, and profitability outlook.

Competition is likely to intensify for the Punit Goenka-lead conglomerate, with potential consolidation following the termination of its merger with Sony Group's India entity, Citi said in a note.

• Revenue down 16.25% at Rs 2,045.7 crore. (Bloomberg estimate: Rs 2,087.3 crore).

• Ebitda down 38.01% at Rs 209.2 crore. (Bloomberg estimate: Rs 208.9 crore).

• Margin narrowed 359 basis points to 10.22% (Bloomberg estimate: 10%).

• Net profit down 52.42% at Rs 58.5 crore. (Bloomberg estimate: Rs 90.5 crore).

The company's management expects a significant improvement in margins going forward. It will focus on reducing cost across verticals, spending optimisation on ROI, and quality content.

The management is also looking into solutions after the cancellation of the merger agreement.

Zee is aiming to grow its revenue by 8-10% and improve Ebitda margin to 18-20% by FY26.

Emkay Global Research also retained 'sell' rating on the company with negative view. The target price was reduced to Rs 165.

Zee's revenue fell in the third quarter of fiscal 2024, tracking fall in advertising revenue for six straight quarters.

Moving forward, the company's growth plan will be key monitorable, according to Motilal Oswal Financial Services Ltd.

The brokerage has maintained a 'neutral' stance on the stock, with a target price of Rs 200. That is a 6% upside from the last closing price.

Zee has incurred an exceptional Rs 60.3-crore cost towards employees and legal matters pertaining to proposed merger arrangement in the third quarter of FY24, said Motilal Oswal.

Here is what brokerages have to say about the Zee

• Citi Research maintained 'sell' on Zee with a target price of Rs 175, a downside of 7.2% from Tuesday's close price.

• Reported numbers were in line with expectations, the brokerage said.

• Management reiterates stance on merger termination, Citi Research said in a note.

• The brokerage guided for margin of 18-20% by FY26.

• The management said cost cutting across business verticals are to be key driver of recovery.

• Citi Research trimmed FY24-26E earnings estimates by 3-6%

• Maintained 'sell' with a neutral stance.

• Did not change the target price at Rs 200, indicating an upside of 6.0% from Tuesday's close price.

• Trimmed Ebitda and PAT estimates for FY25 by 8% and 11%, respectively.

• Sees laggard recovery within the ad revenues and higher operating expenses.

• The entertainment company's revenue fell due to continued weakness in ad spending in the FMCG segment.

• Impact of cricket world cup led to Ebitda decline of 43% YoY, and adjusted PAT (excl. extraordinary items) declined 30% YoY to Rs 92.4 crore.

• Emkay Global Research retained 'sell' rating on the company with negative view and reduced the target price Rs 165, a 12% downside from the last closing price.

• Failure of merger will have shareholder activism, in Emkay Global's view.

• The brokerage cut FY24-26E Ebitda by 5-16%, to factor-in the near-term margin weakness on account of interventions.

• Necessary interventions will have a one-time cost that would result in near-term margin pressure before recovery from H2 FY25.

• Multiple legal issues can lead to potential significant loss in case of an unfavorable verdict, even as such issues can consume management bandwidth.