Analysts upbeat about strong ZEE Q3FY19 results

ZEEL’s revenue rose by 17.9 per cent at Rs 2,167 crore against Rs 1,838 crore last year

e4m by Dipali Banka
Updated: Jan 19, 2019 9:00 AM

Zee Entertainment Enterprises’ strong third quarter results for financial year 2019 beat most industry analysts’ estimates. Shares of the company reportedly rose by as much as 4.2 per cent to Rs 475.90 on the day the results were announcement. While most global and Indian brokerage firms maintained a ‘Buy’ ‘Hold’ and ‘Outperform’ call on the stock, some global brokerage firms such as CLSA, HSBC and Citigroup reportedly raised their 12-month target price for the stock.

Revenue of the company rose by 17.9 per cent at Rs 2,167 crore against Rs 1,838 crore last year, beating IDFC securities’ estimate by 3 per cent, its EBITDA estimate by 5 per cent at Rs 754 crore and Profit After Tax (PAT) estimate by 10 per cent clocking Rs 525 crore in Q3FY19.

“Despite increasing investment across its TV and digital segments, consolidated margin improved by 250 basis point  YoY to 34.8 per cent (IDFCe: 34%), and was a positive surprise. 30%+ guidance for FY19E & FY20E has been retained (9MFY19 stands at 33.6%),” says Rohit Dokania, Research Analyst, IDFC Securities Limited, in his result update.

Abneesh Roy, Research Analyst - Senior Vice President - Institutional Equities – Research, Edelweiss Securities Limited, in his result update, cites, “ZEE’s Q3FY19 revenue, EBITDA and PAT beat our and consensus estimates.”

“Key positives are 21 per cent YoY growth in domestic advertising fuelled by festive season and market share gains; and 29 per cent YoY spurt in domestic subscription revenue. ZEE clocked 34.8 per cent EBITDA margin—highest in past 12 quarters—despite investments in ZEE5,” he adds.

The company maintains its ‘Buy’ rating on the stock and says the stock is ripe for re-rating with another quarter of all-around ‘beat on a high base’.

Its total ad revenue went up by 21.7 per cent at Rs 1,462.6 crore, while total subscription revenue jumped 23.3 per cent at Rs 618.5 crore YoY.

Himanshu Shah, Research Analyst, Institutional Equities, HDFC Securities Institutional Research, in company’s result update, stated, “Despite strong YTD (year to date) performance, Zee’s share price has declined by 22 per cent in FY19. This has been due to PE contraction on account of weak operating cash flows and competitive concerns on digital. We believe that the concerns are overemphasized.”

On TRAI’s new tariff regime

Analysts believe that TRAI’s new tariff regime will augur well for ZEE, given its strong viewership and its leadership position in broadcasting. “Zee remains number 1 player in linear TV (appointment viewing) business with 20.2 per cent viewership share (+200bps YoY) led by strong traction across its Hindi and regional GECs. Growth outlook remain robust for this business. TRAI tariff order is likely to be positive in the medium term, but it may lead to short term volatility. Zee is scaling up well on digital (ZEE5),” says Shah.

On OTT platform ZEE5

Zee Entertainment’s OTT platform ZEE5 monthly active users (MAU) grew to 56.3m as of December 2018 versus 41.3m as of September 2018. On an average, users are spending 31 minutes per day on the platform. Analysts believe ZEE5’s focus on regional shows gives it an edge over peers. “We believe strong adoption of regional content on digital is not too far away and ZEE5 continues to have an edge over peers due to its focus on original regional shows,” says Karan Taurani, VP – Research Analyst (Media), Elara Securities (India) Private Limited.

“The next leg of re-rating will depend on the strategic partner announcement. However, current valuations appear fair at 23xFY20E P/E, given ZEE’s strong growth potential and market share gains in regional genres (Marathi, Tamil, Telugu & Bhojpuri),” mentions Taurani in company’s result update.

Other conference call highlights

  • Zee Entertainment, in Investor conference call, highlighted that they are looking for strategic partner and in discussion with handful of strategic investors. It also highlighted of a possible deal announcement by Mar/Apr-19.
  • Ad growth outperformance was not only led by traditional TV but by the digital platform as well
  • Zee is yet to fully monetize its viewership market share gains in Kannada and Tamil
  • ZEE5 is the only OTT platform creating content in six Indian languages. The company was able to launch only 31 original shows for ZEE5 until 31 December vs a target of 90 set at the start of the year
  • ZEE5 has been soft launched in international markets. Zee expects to commercially rollout in APAC in 4QFY19. It targets to price content between $2 and $10, depending on the geography
  • It estimates subscription revenue growth to be in the mid-teens
  • International advertisements increased by 40 per cent YoY
  • Gained strong traction in Europe and APAC

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