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In-line revenue, margin miss

Zee Entertainment Enterprises (Z IN) posted in -line revenue growth in Q3 , but margi n was below expectations. Advertising revenue declined 9% YoY in Q3 (9M: down 12% YoY) amid sustained FMCG weakness . A d pressure may persist into Q4. Subscription revenue rose 7% YoY, led by traction in Zee5 and DPO renewals, though near -term growth remains measured. The slide in EBIDTA margin was arrest partly as Zee5 posted a turnaround , with EBITDAM of 13.5%. Factoring in Q3, w e pare FY 25-28E revenue /EBITDA/PAT estimates by 5-17%. So, we
reduce our TP to INR 1 40 (from INR 150) – Retain BUY.

Ad revenue pressure continues: In Q3, advertising revenue declined 9% YoY, primarily reflecting sustained weakness in FMCG ad spends . H owever, a 6% QoQ recovery points to early signs of demand stabilization. Management indicated that discussions with
advertisers have become increasingly constructive. Z’s linear TV network share expanded by ~60bps YoY to 17.5%. We expect advertising pressu res to persist in Q4, given the non - seasonal nature of the quarter. Commentary around FY27 suggests a potential inflection in advertising growth in the coming quarters. On 9M basis, adv ertising revenue declined 12.0% YoY . We estimate FY26 E ad revenue to drop ~10%, followed by a ~ 2% CAGR through FY28E .

Subscription revenue up 7% YoY: The performance was led by sustained momentum in the digital business and successful renewals of broadcast DPO contracts. Growth was further supported by improved pricing discipline, higher digital subscriptions, and deeper platform penetration across regional markets. On the dig ital front, ZEE5 surpassed an ARR of >INR 10bn, supported by revised telco pricing agreements, higher syndication revenues, and the rollout of seven language packs. Near -term growth is expected to rem ain measured rather than sharp. We estimate subscription revenue to compound at a 4.7% CAGR in FY25 -28E .

Zee5 turned around corner: Zee5 revenue grew 73.2% YoY and with a positive EBITDA of INR 564mn , which was commendable amidst competition . Consolidated EBITDA margins contracted 554bps YoY, led by higher costs related to the theatrical rights of Kantara ,
continued investments in content, and a softer advertising environment, particularly within FMCG. Recovery in advertising remains key driver for margin improvement, while sustained cost discipline in the digital business will be critical through FY27. E xpect EBITDA margin to remain in 10.5-12.5% band .

Maintain BUY; TP pared to INR 140: Q3 margin was muted on higher costs related to Kantara distribution rights even as headline was in line. Growth concerns over ad revenue may persist as 9M declined by 12% YoY. FMCG ad spends , so far , has been muted despite the festiv al season. Stabili S ty on Zee5 profitability can act as S key lever in case of any slide -arrest in core broadcasting margin, this could drive share price performance. Incremental margin gains could be sticky as major cost optimization is behind . Factoring in Q3, while our revenue estimates are unchanged, we pare FY25 -28E revenue /EBITDA/PAT estimates by 5 -17%. Nonetheless, core TV broadcasting trades at fair 4.8 x P/E , valuing it on 9x Dec -27E, and Digital on 3x revenue – L ikely value unlock for Zee Music may trigger re -rating. Maintain Buy with a pared TP of INR 1 40 .

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