Neutral Zee Entertainment Ltd For Target Rs.70 by Motilal Oswal Financial Services Ltd
Another quarter with subdued profitability, despite revenue boost from FIFA’26
* Zee delivered another quarter of subdued profitability, with ~52% YoY decline in EBITDA (17% miss), despite encouraging subscription growth (+30% YoY) from FIFA WC’26 broadcast. After several quarters of persisting decline, ad revenue was flat YoY, likely due to a boost from FIFA WC’26 and improving content slate.
* ZEE5 revenue doubled YoY to INR6.3b, supported by FIFA WC’26-led subscriber additions and higher engagement, while EBITDA improved to INR416m (vs. INR44m in 1Q).
* However, linear TV profitability deteriorated further, with revenue declining ~3.6% YoY and EBITDA falling ~84% YoY (margins down ~8.9pp YoY to 1.8%), reflecting continued weakness in the core business.
* Management remains cautiously optimistic about 2H, led by improving festive advertising demand, a stronger content pipeline, and continued digital subscriber monetization. FIFA-led subscriber retention of ~35-40% is encouraging, although elevated content investments and the structural shift in advertising spends toward digital remain key concerns.
* We cut our FY27/28E EBITDA estimates by 11%, driven by subdued ad environment and weaker profitability amid higher content investments.
* Despite a continued trend of decline in ad revenue for past several years, we have built in ~4% annual growth in ad revenue in FY28/FY29, which has downside risks from the structural shift in ad spends to digital.
* We build in a CAGR of 2% in revenue over FY26-29E, while we expect the FY29E EBITDA/PAT to remain below FY25 levels.
* We reiterate our Neutral rating with a revised TP of INR70 (earlier INR 80), premised on ~12x Dec’28E P/E.
Another subdued quarter on profitability despite revenue boost from FIFA’26
* Consolidated 2Q revenue grew 17% QoQ (+13% YoY) to INR22.2b (vs. our est. INR21.9b), driven largely by the boost from FIFA WC’26 broadcasting.
* Advertisement revenues were flat YoY at INR8b (vs. -12% YoY in 1Q, in line). We believe the persistent decline in ad revenue was halted in 2Q, largely due to FIFA’26 broadcast.
* Subscription revenue grew 30% YoY to INR13.3b (+17% QoQ, 5% beat), likely driven by a surge in ZEE5 subscriptions led by FIFA WC’26.
* Revenues from other sales and services declined ~36% YoY to ~INR900m (-10% QoQ, 19% miss), due to weaker syndication revenue.
* Programming costs grew ~14% YoY, while advertisement and promotional spends jumped 55% YoY due to marketing of FIFA 2026.
* Employee costs declined ~8% YoY, while other expenses remained stable
* Zee reported EBITDA of INR708m (-52% YoY, 17% miss) as higher costs more than offset the boost from FIFA WC’26 broadcasting.
* Reported 2Q PAT of INR478m (-38% YoY) came in 12% below our estimate due to weaker EBITDA, partly offset by lower depreciation (-25% YoY) and finance cost (-81% YoY).
* Zee’s pre-IND AS OCF outflow stood at INR4.1b in 1HFY27 (vs. INR840m outflow YoY). Capex (net) surged to INR1.17b (vs. INR700m YoY), resulting in FCF outflow of INR5.3b (vs. INR1.5b outflow YoY).
Valuation and view
* Slowdown in FMCG’s ad spending on linear platforms continues to weigh on Zee’s domestic ad revenue (~37% decline over FY19-26).
* We believe that a sustainable recovery in ad revenue remains the key to any potential re-rating of multiples for Zee.
* We cut our FY27/28E EBITDA estimates by 11%, driven by subdued ad environment and weaker profitability amid higher content investments.
* Despite a continued trend of decline in ad revenue for past several years, we have built in ~4% annual growth in ad revenue in FY28/FY29, which has downside risks from the structural shift in ad spends to digital medium.
* We build in a CAGR of 2% in revenue over FY26-29E, while we expect the FY29E EBITDA/PAT to remain below FY25 levels.
* We reiterate our Neutral rating with a revised TP of INR70 (earlier INR 80), premised on ~12x Dec’28E P/E.
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