IGI Logo

Strong subscription revenue, merger approved

Zee Entertainment Enterprises Ltd. (ZEEL), a subsidiary of Essel Group, is an Indian mass media company with interests in television, print, films, mobile content and internet, and allied businesses. • Revenue from operations in Q1FY24 grew 7.6% YoY to Rs. 1,984cr, driven by subscription revenue, and other sales and service revenue. • EBITDA fell 42.3% YoY to Rs. 155cr, while margin narrowed 680bps YoY to 7.8% due to a rise in overall expenditure. Reported PAT fell 97.0% YoY to Rs. 4cr, dented by a one-off exceptional loss of Rs. 71cr. • A healthy performance of the subscription business and gradual improvement in the advertisement segment are expected to boost profitability. Moreover, the NCLT’s approval for the Zee-Sony merger is positive, as the merger will provide synergy to the overall business. Hence, we reiterate our BUY rating with a rolled forward target price of Rs. 312 based on 26x FY25E adjusted EPS.

Healthy subscription revenue drives top line, opex dents EBITDA

In Q1FY24, ZEEL‘s operating revenue increased 7.6% YoY to Rs. 1,984cr owing to a strong growth in subscription revenue and other sales and services revenue. However, it was partly offset by a drop in advertising revenue. The subscription segment grew 17.6% YoY to Rs. 90cr, aided by rising subscription revenue post-NTO 3.0 & ZEE5. Other sales and services revenue surged 42.1% YoY to Rs. 135cr, underpinned by theatrical revenue from movie releases. However, advertising revenue declined to Rs. 941cr, down 3.5% YoY, due to muted ad spending by corporates. Moreover, the company expects advertising revenue to increase in the coming quarter as ad spending has begun picking up at moderate pace. EBITDA fell 43.3% YoY to Rs. 155cr, while EBITDA margin contracted 680bps YoY to 7.8% due to an increase in costs across content, marketing and technology. Investment in the content and user-based investment in technology are expected to continue. Subsequently, reported PAT declined 97.0% YoY to Rs. 4cr. PAT was also derailed by an exceptional item of Rs. 71cr during the quarter, due to employee and legal expenses

NCLT approves Zee-Sony merger, synergy for business expected

The merger between ZEEL and Sony Pictures Networks India (SPNI) was approved by the National Company Law Tribunal (NCLT) on August 10, discharging all the objections. We expect, after the merger, the company will gain market share and Sony’s existing business will provide synergy to the company to boost its overall performance in the long run

Key quarter highlights

• ZEEL expects a strong recovery in revenue growth starting from Q3FY24 as festival season kicks off.

• Zee5 revenue increased 21% YoY to Rs. 194cr; it released 32 shows and movies during the quarter.

• Zee Music Company has seen consistent growth in video views and subscribers. It acquired 62% of new Hindi movie titles in Q1FY24.

Valuation

The subscriptions segment displayed a strong performance during the quarter, and we expect ad revenue to improve as ad spending has started picking up. The company is managing its costs better by reducing its content costs. This is expected to improve its margin. Moreover, NCLT has approved the merger between ZEEL and SPNI. Therefore, after the merger, we expect the profitability of the company to grow in the long term. Hence, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 312 based on 26x FY25E adjusted EPS.

To Read Complete Report & Disclaimer Click Here

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345

Above views are of the author and not of the website kindly read disclaimer