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Zee’s advertising revenue declined for the fifth consecutive quarter (YoY), down 3.3% YoY in Q2FY24 and broadly in line with our estimate. Ad revenue recovery for Zee has been slow, despite FMCG companies hiking their ad spends. The festive season should grant some impetus to ad revenue growth, which continues to lag. Subscription revenue reported an uptick of 8% YoY, aided by NTO3.0 implementation. Other sales & services reported a strong performance owing to theatrical performance and syndication deals. EBITDA margin expanded by 580bps QoQ to 13.6%, braced by flow-through of higher revenue. The management expects to fulfill certain merger-closure conditions within the next few weeks, and timelines remain key. We cut EBITDA for FY24E by ~13% and for FY25-26E by 2-6%, to factor-in the Q2 results, slower ad revenue recovery, and elevated cost levels for Zee. We retain BUY and revise down our TP to Rs315/sh (9.5x Sep-25E pro forma broadcasting EV/EBITDA), with a comprehensive review under way owing to the merger.

Zee Entertainment: Financial Snapshot (Consolidated)

Results Summary

Zee’s consolidated revenue grew 20% YoY to Rs24.4bn, higher than our estimate of Rs21.9bn. Ad revenue declined 3% YoY to Rs9.8bn, while subscription revenue growing 8% YoY, driven by the implementation of NTO3.0. Other sales & services more than tripled YoY on account of the stellar box-office performance of movies and the syndication deals. Operating costs increased 40% YoY to Rs14.2bn, due to higher content costs (including movies) and investment in Zee5. EBITDA margin improved by 580bps QoQ to 13.6%. Zee5’s revenue grew 59% YoY/37% QoQ, with losses also declining by Rs882mn QoQ to Rs2.5bn. The company reported net profit of Rs1.2bn, including exceptional items amounting to Rs1.2bn (merger-related) and a loss of Rs69mn from discontinuing operations. The company’s market share improved by 90bps QoQ to 17.9% (all 15+ U) What we like: Steady growth in subscription revenue, strong other sales & services, improvement in market share What we do not like: Slower ad revenue recovery.

Earnings Call KTAs

1) Proposed merger with Sony: Zee is committed to fulfilling all points addressed by the NCLT. It is likely to take a few more weeks for completion. 2) Ad revenue: There has been a gradual recovery led by FMCG companies. Startups are still not advertising. The Asia Cup took away some share in September, and the ongoing World Cup is also likely to have an impact. The festive season should aid in driving the ad revenue this quarter. 3) Subscription revenue: The decline of 2.2% QoQ in subscription revenue was due to lumpiness in Q1. The impact of NTO3.0 has now stabilized. 4) Zee5: All metrics remain healthy. Revenue growth of 59% YoY has also been aided by syndication deals. EBITDA losses moderated to Rs2.5bn, an improvement of Rs882mn QoQ, aided by operating leverage and prudent cost spending. Zee5 released 22 shows and movies in Q2, including 4 originals. The OTT market is settling now, and pricing wars should soon end. 5) Movies: Zee Studios released 6 movies this quarter — 2 in Hindi and 4 in Regional, with Gadar 2 becoming the highest-ever grossing movie for Zee Studios. 6) Market Share: Market share improved by 90bps QoQ to 17.9% in Q2, fairly broad-based across key markets like Hindi GEC, Hindi movies, Marathi, Kannada and Telugu. 7) Exceptional Items: Zee recorded merger-related costs of Rs1.2bn, which include a one-time provision for stamp duty. 8) Others: Share of Pay TV has increased by ~300bps since the last one year.

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