Accmulate Zee Entertainment Enterprises Ltd For Target Rs. 91 by Prabhudas Liladhar Capital Ltd
Margins hit due to change in movie amortization policy
We cut our EPS estimates by 20%/18% for FY27E/FY28E and downgrade Z IN to ACCUMULATE (earlier BUY) with a TP of Rs91 (10x FY28E EPS; earlier 11x) as we fine tune our domestic ad-revenue growth forecast and operating cost assumptions given change in movie amortization policy. Z IN reported weak operational performance with EBITDA loss of INR2,686mn (PLe EBITDA profit INR2,219; CE INR2,183mn) due to an accelerated charge of INR4,084mn arising from a change in movie amortization policy. Nonetheless, ad-revenues showed some signs of recovery with growth hovering around the low single digit mark adjusting for crisis ridden March. We expect revenue CAGR of 4.0% over FY26-FY28E with EBITDA margin of 12.9%/14.4% in FY27E/FY28E. Z IN trades at 11x/9x our FY27E/FY28E EPS. Downgrade to ACCUMULATE with a TP of Rs91 (10x FY28E EPS).
Top line decreased by 7.3% YoY:
Revenue declined by 7.3% YoY to INR20,248mn (PLe INR21,301mn; CE INR21,048mn). Ad revenues declined by 3.5% YoY to INR8,080mn (PLe INR8,444mn) due to the ongoing Middle East crisis. Subscription revenues increased by 3.9% YoY to INR10,247mn (PLe INR10,341mn), led by subscriber additions in digital business, and other sales and services revenue decreased by 46.7% YoY to INR1,921mn (PLe INR2,571mn) due to muted performance by studio business.
Adjusted EBITDA margin stood at 6.9%:
EBITDA loss stood at INR2,686mn. Adjusting for an additional inventory charge of INR4,084mn due to change in amortization policy of movie business, adjusted EBITDA for the quarter stood at INR1,398mn (PLe EBITDA INR2,219mn; CE INR2,183mn) with an adjusted margin of 6.9%. Loss stood at INR1,037mn for 4QFY26. However, after adjusting for a fair value gain on financial instruments of INR138mn, and for the revised amortization expense of INR4,084mn, the adjusted PAT stood at INR2,907mn (PLe Rs1,316mn; CE Rs1,350mn).
ZEE5 turns EBITDA positive for 2nd consecutive quarter:
ZEE5’s revenue increased by 71.1% YoY to INR4,700mn during the quarter, with EBITDA loss of INR84mn (Adjusting for the inventory charge, ZEE5 reported a positive EBITDA in 4QFY26). 45 new shows/movies were launched including 11 originals in 4QFY26.
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