Zee Entertainment: Analysis, Insights, and Future Outlook
Zee Entertainment Enterprises Ltd.’s Q1 FY26 was significantly weak, with domestic ad revenues declining steeply by 19% Year-on-Year (YoY). Revenue/Earnings Before Interest, Taxes, Depreciation, and Amortization (Ebitda)/Adjusted Profit After Tax (PAT) in Q1 came at -14%/-16%/-11% YoY, whereas for FY25 it grew by -4/+28/+36% YoY, led by costs rationalization.
Following five consecutive years of Ebitda decline (FY19-24), the company witnessed a rebound in FY25. We expect Zee’s financials to benefit from the revival in ad growth supported by a favorable base, further aided by management efforts to widen and deepen the genre, geographic, and customer reach, as well as switch from PayTV to Free-to-Air (FTA).
Additionally, we anticipate reduced losses in the digital segment and operating leverage potential events like merger and acquisition or an increase in stake by Promoters (which could be an additional positive trigger). Growth disappointment and misallocation of capital are key risks.
We reduce our FY26/27E Ebitda by 10/8% and Earnings Per Share (EPS) by 10/7% to factor weak near-term advertising outlook. Zee has ~Rs 22 billion but is partly offset by the risk of potential contingent liabilities.
We downgrade our rating by a notch to ‘Accumulate’ from ‘Buy’ with a revised target price of Rs 150 @ 15x FY27E EPS (vs Rs 160 @ 16x FY27E earlier).
It’s essential to note that the company’s guidance for 8-10% ad revenue growth and 18-20% Ebitda margin by FY26, with revenue-driven margin expansion, is optimistic. While being optimistic about diversification into retail and international markets to boost ad revenues, we acknowledge the execution risks, given management’s past track record. Further, litigation risks from TV18-Star post-merger, potential capital misallocation, cord-cutting, and shift of ad dollars to digital are additional challenges.
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Zee Entertainment Enterprises Ltd.’s Q1 FY26 was significantly weak, with domestic ad revenues declining steeply by 19% YoY. Revenue/Ebitda/Adjusted PAT in Q1 came at -14%/-16%/-11% YoY, whereas for FY25 it grew by -4/+28/+36% YoY, led by costs rationalization.
Following five consecutive years of Ebitda decline (FY19-24), the company witnessed a rebound in FY25. We expect Zee’s financials to benefit from the revival in ad growth supported by a favorable base, further aided by management efforts to widen and deepen the genre, geographic, and customer reach, as well as switch from PayTV to FTA.
Additionally, we anticipate reduced losses in the digital segment and operating leverage potential events like merger and acquisition or an increase in stake by Promoters (which could be an additional positive trigger). Growth disappointment and misallocation of capital are key risks.
We reduce our FY26/27E Ebitda by 10/8% and EPS by 10/7% to factor weak near-term advertising outlook. Zee has ~Rs 22 billion but is partly offset by the risk of potential contingent liabilities.
We downgrade our rating by a notch to ‘Accumulate’ from ‘Buy’ with a revised target price of Rs 150 @ 15x FY27E EPS (vs Rs 160 @ 16x FY27E earlier).
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