Buy Zee Entertainment Enterprises Ltd For Target Rs.177 by Prabhudas Liladhar Capital Ltd
Recovery likely be to back-ended
Quick Pointers:
* Despite a 16.8% YoY decline in ad-revenue to Rs7,585mn, aspirational guidance of achieving ~8-10% growth in FY26E remains intact.
* ZEE5’s EBITDA loss of Rs658mn is at an all-time low.
We cut our PAT estimates by 8%/10% for FY26E/FY27E amid subdued performance in 1QFY26. Z IN reported weak set of numbers as top-line declined 14.3% YoY to Rs18,248mn (PLe Rs19,733mn) with an EBITDA margin of 12.5% (PLe 12.0%). 1QFY26’s performance was a partial aberration marred by 1) weak subscription revenue growth amid ongoing negotiations with MSOs, 2) no material benefit arising from Zee Anmol’s re-entry into FTA as it takes time to build viewership, and 3) absence of big-budget releases. As a result, despite a sub-par quarter, we expect 6.6% revenue CAGR over next 2 years with EBITDA margin of 16.9%/19.2% in FY26E/FY27E given 1) viewership share is showing signs of improvement having surpassed 18% mark in July-25, 2) benefit of ZEE Anmol’s re-entry into FTA market is likely to materialize soon, and 3) digital business is expected to achieve EBITDA break-even in FY27E. Backed by sharp earnings recovery and attractive valuations (13.4x/10.5x our FY26E/FY27E EPS) we maintain BUY with a TP of Rs177 (14x FY27E EPS; earlier 15x).
Top line decreased 14.3% YoY: Revenue decreased by 14.3% YoY to Rs18,248mn (PLe Rs19,733mn). Domestic ad-revenue declined 19.2% YoY to Rs7,025mn, primarily due to extended sports calendar and slowdown in spending by FMCG companies. However, total subscription revenues remained flat at Rs9,817mn (PLe Rs10,268mn). Meanwhile, other sales and services revenue declined sharply by 63.5% YoY to Rs846mn (PLe Rs1,508mn) due to absence of major releases.
EBITDA margin stood at 12.5%: EBITDA decreased 16.1% YoY to Rs2,280mn (PLe Rs2,368mn) with a margin of 12.5% (PLe 12.0%). Reported PAT stood at Rs1,437mn with a margin of 7.9%. After adjusting for a fair value gain on financial instruments of Rs109mn, adjusted PAT declined 14.5% YoY to Rs1,328mn (PLe Rs1,404mn).
ZEE5’s revenue increased 29.6% YoY: ZEE5’s revenue increased by 29.6% YoY to Rs2,900mn. 17 new shows/movies were launched including 5 originals in 1QFY26 and EBITDA loss declined to Rs658mn.
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