Buy Zee Entertainment Enterprises Ltd for the Target Rs 101 by Prabhudas Liladhar Ltd
High content and A&P spend dents margins
We cut our EPS estimates by 4%/2% for FY28E/FY29E as we fine-tune our content cost and A&P spend assumptions. Z IN reported weak operational performance with EBITDA margin of 3.2% (PLe 3.4%) primarily due to an adverse advertising environment coupled with elevated programming and A&P spends on account of acquisition of FIFA rights. Excluding the impact of higher spends, EBITDA margin would have been in the mid-tohigh single digit band. Given A&P spends would normalize post FIFA screening and subscriber retention rate is trending in the region of 35-40% (aids subscription business) we expect margin recovery from 2HFY27E. Led by healthy traction in digital business and expected recovery in ad-environment, we expect 7% sales CAGR over the next 3 years with EBITDA margin of 7.2%/13.2%/14.3% in FY27E/FY28E/FY29E. Retain BUY with a TP of INR101 (12x Sep-28E EPS; earlier 13x).
Top line increased by 13.0% YoY:
Revenue increased 13.0% YoY to INR22,246mn (PLe INR21,538mn). Ad revenues remained flat at INR8,030mn (PLe INR8,141mn). Subscription revenues increased 30.2% YoY to INR13,324mn (PLe INR12,250mn) led by acquisition of FIFA rights. Other sales and services revenue decreased 36.2% YoY to INR892mn (PLe INR1,147mn) on account of lower number of movies produced and released.
EBITDA margin stood at 3.2%:
EBITDA decreased 51.6% YoY to INR708mn (PLe INR724mn) with a margin of 3.2% (PLe 3.4%). Higher content cost of INR12,247mn (PLe INR12,061) and A&P spends of INR5,710mn (PLe INR5,514mn), led to dilution in EBITDA margin. PAT for the quarter stood at INR456mn. However, after adjusting for the fair value gain on financial instruments of INR150mn, adjusted PAT decreased 52.1% YoY to INR306mn (PLe INR346mn; CE INR609mn), with a margin of 1.4% (PLe 1.6%).
ZEE5’s EBITDA margin stood at 6.6% in 2QFY27: ZEE5’s revenue increased by 101.4% YoY to INR6,260mn during the quarter, with EBITDA margin of 6.6%. 34 new shows/movies were launched including 9 originals in 2QFY27.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
