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Making an arduous turnaround effort; upgrade to REDUCE

In the aftermath of Zee’s merger breakoff with Sony, the Management and Board of the company have embarked on a comprehensive plan to help regain its lost glory, and announced multiple initiatives. Though Zee saw superior performance over FY13-19, such execution would be difficult to replicate, given the altered industry dynamics/competitive scenario. Near-term performance is likely to worsen due to such interventions, before Company sees any improvement. Ongoing legal cases only add to its woes and, we believe, could derail current plans. While valuations are favorable, overall re-rating is likely to happen only if a new partner/buyer surfaces – Zee’s decision to withdraw the merger implementation application filed before the NCLT could possibly be a precursor to this. We cut FY25-26E EBITDA by 10-12%, building in slower recovery. We upgrade Zee to REDUCE after a sharp ~24% correction since our last report and limited downside from current levels, but maintain a negative stance. We trim our TP to Rs150/sh (8x Mar-26E Broadcasting EBITDA).

Targets 8-10% sustainable revenue growth and 18-20% margin by FY26

Zee’s Board and Management have taken multiple proactive initiatives, aimed at turning around the company’s medium-term performance. As part of the plan, Punit Goenka has assumed direct charge of key verticals, along with promoting certain team members to more responsible roles. Key initiatives include: i) Rationalization of the workforce by 15% across verticals. ii) Focus on the 4 key business verticals of: Broadcast, Digital, Movies and Music. iii) Sharper focus on frugality, optimization, and content. iv) Constitution of a monthly management mentorship (3M) program to guide and enable Management to achieve KPIs. iv) 20% cut in remuneration of the current MD & CEO of the company. Near-term focus will be on trimming costs across functions to help improve margins. The company has also seen exits of some senior personnel in the last couple of months, as it looks to deliver a better performance.

Outlook

Zee’s near-term performance is likely to further deteriorate from current levels as it implements measures to achieve its FY26 targets. Zee5, which has been driving down margins of the entire company, can possibly be impacted and see some slowdown in revenue as the focus now shifts more toward reducing the losses. Meanwhile, the company’s legal woes continue with regard to the merger-related case with Sony, its tussle for cricket rights with Disney Star, and Punit Goenka’s ongoing SEBI case. Any unfavorable decisions against the company could cause further pain and derailment of current plans, in our view. We believe the company is up against a tough business environment currently, and particularly with it competing against the larger entity of Disney- Reliance combined. Also, the company has now withdrawn its merger implementation application filed before the NCLT, to pursue growth and strategic opportunities. In our view, emergence of a new partner/buyer would be a key trigger for a stock re-rating. The stock is currently trading at its lowest valuation since the last 10 years (on 1YF EV/ EBITDA basis), which is a clear sign of the tight spot it is in. The stock price has sharply corrected since the merger breakoff, and could continue to languish given lack of triggers in the near term, in our view.

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