Mid Cap : Buy Zee Entertainment Enterprises Ltd For Target Rs.325 - Geojit Financial
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Strong pipeline. Positive outlook
Zee Entertainment Enterprises Ltd is an Indian mass media company with interests in television, print, films, mobile content and internet, and allied businesses.
* Zee Entertainment’s consolidated revenue for the Q3FY22 declined 22.6% YoY to Rs. 2,113cr however on quarter-on-quarter basis it increased by 6.8%.
* EBITDA for the quarter declined by 33.0% YoY to Rs. 479cr contracting the margins by 353bps to 22.7%
* In the short term there is risk associated with corona virus cases, however given its large portfolio, strong pipeline, synergies from the merger, and significant growth in the digital platform business, we reiterate BUY rating on the stock with a revised target price of Rs. 325 based on 18.0x FY24E adj. EPS.
Strong pipeline of content to drive growth
Consolidated revenue declined by 22.6% YoY to Rs. 2,113cr, because of higher base effect due to one-off syndication deal revenue in other sales & services (adjusting for the one-off the revenue declined 3% YoY). Gross margin increased 368bps YoY (- 247bps QoQ) to 51.9%. The ZEE5 earned revenue of Rs. 1,459cr (+24% YoY, +12% QoQ), launched 51 new shows on ZEE5 including 11 original shows, and has compelling content lined up in Q4FY22. Zee network launched 25+ shows across its channels, while viewership share decreased 90bps YoY. During the quarter, Zee studio released 5 movies, while a strong slate of movies across Hindi, Tamil, Telugu, Marathi and Punjabi languages is being planned for release in Q4FY22, depending upon covid related restrictions in coming quarters. ZEE music co. saw 42% growth in the YouTube views with 3mn subscribers added in Q3FY22.
Key concall highlights
* Zee-Sony merger process has been initiated in December, both the companies to function independently until they receive approval from CCI.
* For the first time ZEE5’s global MAUs crossed 100mn mark and DAUs were 9.6mn with average watch time of 201 minutes per user.
* The third wave of corona virus and surge in the covid cases could potentially impact the fourth quarter results.
* ZEE network’s viewership share for the December quarter decreased 40bps QoQ (-90bps YoY) to 17.3%.
Margins impacted
EBITDA declined 33.0% YoY, however increased sequentially by 23.1% to Rs. 479cr due to lower revenue and impacted margins as a result of higher operating costs compared to last year. EBITDA margins contracted 353bps YoY to 22.7% (+301bps QoQ) due to higher Advertising and publicity expense and Employee and benefits expense compared to last year. PAT declined 25.3% YoY to Rs. 314cr (+10.5% QoQ).
Valuation
In the short term there is risk associated with corona virus cases which may impact ZEE studio business. Lower advertisement spends by consumer companies could also impact the revenues, however given its diverse portfolio of content, strong pipeline, synergies from the merger, and significant growth in the digital platform business, we reiterate BUY rating on the stock with a revised target price of Rs. 325 based on 18.0x FY24E adj. EPS.
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