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Zee reported a mixed operating performance in Q2FY25. Advertising revenue growth remained underwhelming, declining by another 7.9% YoY. Ad revenue has now declined (YoY) in last eight of the nine quarters. Subscription revenue saw an uptick of 9.2% YoY. Margins surprised positively as Zee contained expenses across the board. Management stated that advertising environment has picked up in September in the run-up to the festive season, although longterm spending trend remains uncertain as of now. Zee has made some progress on their financial aspirations which were announced after breakdown of the merger, though lack of ad revenue growth recovery remains the biggest concern. In our view, going ahead, the absence of revenue pickup will act as a hindrance for further margin expansion. We reiterate that a significant re-rating should be possible in case of a new partner/buyer. With persisting challenges on the advertising growth front, we cut our FY26-27 EBITDA by 8-10%. We maintain REDUCE with TP of Rs140 (8x Sep-26E Broadcasting EBITDA)

Results Summary

Zee’s consolidated revenue declined 17.9% YoY/6.1% QoQ to Rs20bn, slightly below our estimate of Rs20.4bn. Advertising revenue reduced 7.9% YoY to Rs9bn with domestic advertising seeing an even sharper fall of 8.5% YoY. Subscription revenue grew 9.2% YoY to Rs9.7bn. Other Sales and Services saw a sharp decrease of 77.4% YoY due to a high base (Q2FY24 benefited from the release of Gadar 2). EBITDA margin of 16% was much higher than our estimate of 12.5%. Margin was aided by lower operational expenses as well as advertisement & publicity expenses. The company reported a profit of Rs2.1bn. Zee’s market share improved to 17.4% in Q2 from 16.4% in Q1 (which was impacted by cricket and election). Zee5’s revenue grew 5.6% QoQ/declined 10.9% YoY to Rs2.4bn, while EBITDA losses further improved to Rs1.6bn from Rs1.8bn in Q1FY25. The OTT platform released 16 shows and movies during the quarter. What we liked: Sustained growth in subscription revenues, margin recovery, reducing losses in Zee5. What we did not like: Continuous weakness in advertising revenue

Earnings Call KTAs

1) Ad revenue: Sentiments were weak during Q2, particularly in July and August. There was some pickup in September leading up to the festive season. Ad spends have become more tactical in nature. 2) Subscription revenue: Growth has been aided by price hikes in linear TV and the growth in digital business. 3) Movie production: Zee Studios has a few planned releases in H2FY25 with some big-budget movies like Emergency and Game Changer. The company will remain at the forefront of movie production going ahead. 4) Zee5: Zee5’s performance has been improving over the last few quarters. Management is conscious of balancing margin profile with growth aspirations. Q2 saw an increase in paid subscribers and watch time on both YoY and QoQ basis. 5) Music: The company will continue to invest in the music segment with sharp focus on profitability. 6) Content and other expenses: The company has not seen any challenges in acquiring new content either on the linear TV or digital side. The aim is to bring down inventory and advances further. Wage hikes have been undertaken effective 1-Sep. 7) Industry: The management does not see any material change with the Reliance-Disney merger, though the combined entity may have some leverage on advertising dollars. On the digital side, the merged entity caters more on the sports side, whereas Zee’s strategy is entertainment focused. Linear television will remain relevant over the long term

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