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Margin mirage

Quick Pointers:

* EBITDA margin sinks to 7.4% as A&P spends elevate amid new channel launches.

* ZEE5 is on the verge of EBITDA break-even (loss of Rs312mn in 2QFY26)

Z IN reported weak set of numbers as top-line declined 1.6% YoY to Rs19,692mn (PLe Rs19,494mn) with an EBITDA margin of 7.4% (PLe 6.0%). EBITDA margin was at a 10-quarter low led by higher A&P spends (18.7% of sales) amid new channel launches in Kannada & Bangla markets. Nonetheless, viewership share is showing signs of improvement (17.8% in 2QFY26) while digital business is on the verge of EBITDA break-even. We expect margin recovery to be back-ended led by improvement in ad-environment and mean reversion in A&P spends. We expect revenue CAGR of 5.5% over the next 3 years with EBITDA margin of 12.3%/18.4%/19.5% in FY26E/FY27E/FY28E. Backed by sharp earnings recovery and attractive valuations (9.5x/8.2x our FY27E/FY28E EPS) we maintain BUY with a TP of Rs161 (14x FY27E EPS; no change in target multiple).

Top line declined marginally by 1.6% YoY: Revenue decreased by 1.6% YoY to Rs19,692mn (PLe Rs19,494mn). Domestic ad-revenue declined 12.3% YoY to Rs7,553mn amid slowdown in spending by FMCG companies. However, subscription revenues inched up by 5.5% YoY to Rs10,230mn largely led by digital segment. Meanwhile, other sales and services revenue increased by 8.4% YoY to Rs1,399mn driven by higher syndication revenue

EBITDA margin succumbs to 7.4%: EBITDA declined 54.4% YoY to Rs1,464mn (PLe Rs1,170mn; CE Rs1,716mn) with a margin of 7.4% (PLe 6.0%) due to higher content cost and A&P spends. After adjusting for a fair value gain on financial instruments of Rs126mn, adjusted PAT declined 67.5% YoY to Rs639mn (PLe Rs588mn; CE Rs1,096mn).

ZEE5’s revenue increased 31.5% YoY: ZEE5’s revenue increased by 31.5% YoY to Rs3,108mn. 26 new shows/movies were launched including 7 originals in 2QFY26 and EBITDA loss declined to Rs312mn.

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