Published on 28/07/2017 12:20:04 PM | Source: Religare Securities Ltd

Buy Zee Entertainment Enterprises Ltd For Target Rs.592.00 - Religare Sec

A stable quarter…

Zee Entertainment Enterprises Ltd.'s Q1FY18 result was largely inline with our expectations. The company reported 2% YoY degrowth in sales primarily led by lower subscription revenue. EBITDA increased by 26.8% YoY on account of lower operating cost while sharp surge in other income supported PAT growth at 15.8% YoY. In spite of subdued advertising spends in the back drop of GST implementation, ZEEL's 7% YoY ad revenue growth is impressive. We expect subscription revenue to improve once complete effect of digitisation kicks in. ZEEL remains our top pick in broadcasting space considering its dominant positioning in GEC and RGEC space. Maintain BUY.


Q1FY18 Result Update:

* Net sales for the quarter came in at Rs 1,540crs, declined by 2% over Q1FY17. ZEEL's advertising revenue growth of 7% YoY was a tad higher than our expectation. The company reported better than industry growth rate, once again reiterating its leadership position. The management has guided ad revenue to further grow in Q2FY18 as a spillover effect of this quarter. Subscription revenue declined by 9.3% YoY due to absence of sports business in Q1FY18.

* EBITDA for the quarter stood at Rs 431.2crs, a growth of 26.8% yoy. Lower programming cost and overall cost optimisation boosted EBITDA margin at 28%.

* PAT increased by 15.8% YoY to Rs 251.4crs. Net profitability improved by 250bps to 16.3% supported by 37.7% increase in other income at Rs 101crs.


Outlook & Valuation:

ZEEL has consistently delivered healthy earnings, outperforming the industry growth rate. The company's strong bouquet offerings across regional languages and superior content would act as catalyst for future growth. Strong margins, presence across genres, cash rich balance sheet augurs well for the company's growth prospects. We estimate revenue and EBITDA to grow at a CAGR of 7.5%, 6.9% respectively over FY17-19E. We maintain BUY on the stock with a price target of Rs 592.


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