ZEE Enterprises' estimated ad growth at 15% YoY in FY19: Analysts

Subscription revenue is also estimated to grow 14 per cent YoY in FY19

e4m by Sonam Saini
Updated: May 11, 2018 8:56 AM

Zee Entertainment Enterprises Ltd's (ZEEL) Q4FY 18 results reported revenue growth of 12.9 per cent YoY on the back of better performance in advertising revenue, which outperformed with 23.9 per cent YoY growth.

ZEE launched its new digital property ZEE5 in Q4FY18, with 100,000+ hours of content. According to DART (Dolat Analysis &Research Theme) the management has guided for ad. revenue growth above industry averages (10%-12%YoY) led by traction in viewership across GEC and other genres, however EBITDA margin is exposed to headwinds in the form of higher content cost due to increased programming hours in GEC. ZEE is trading at premium valuations of 34.3x/30.5x based on FY20/FY21 earnings estimates; maintain reduce rating.

Punit Goenka, Managing Director & Chief Executive Officer, ZEEL, commented, "We launched our new digital platform ZEE5 with over 100,000 hours of content across 11 languages. We are happy with the initial response and are confident that the sheer depth and breadth of our content offering will enable it to become the number one digital entertainment platform in India.”

“We are delighted with the strong operating and financial performance during the quarter. Domestic ad revenue growth of 24% is driven by broad based recovery in advertising spends. With high visibility of product campaigns, improving consumer demand and GST related benefits trickling down to ad spends, we are confident of continued traction in advertising spending. The full-year domestic subscription revenue growth of 12% is a tad lower than our initial expectations due to some unforeseen events. However, there is no change in our medium-term outlook for the same."

The company has reported a healthy ad. revenue growth but weak subscription revenue in this quarter. Ad revenue grew 23.9 per cent YoY to Rs 10.5bn. Adjusted for sports, domestic advertising grew by 24.9 per cent YoY to Rs 9.8bn. On a comparable basis (excluding sports, RBNL and IWPL), domestic advertising revenue grew by 21.5 per cent. Domestic and international subscription revenue declined 8.0 percent /0.7 per cent YoY because sale of sports business; however, adjusted for the sale of sports business, domestic subscription revenue grew by 18.1 per cent YoY.

Speaking about Q4FY18 performance Karan Taurani, VP Research- Dolat Capital said, “It's a positive surprise on the ad factor, especially 24 per cent. The margins are lower but again it had investment going ahead. In terms of view going ahead we are estimating growth of 14-15 per cent ad growth for FY19 and ad growth conversion in FY20-21 because TV as a medium is going to decline in terms of overall ad pie. So the conversion growth rate for the industry has to be there and secondly, they mentioned to maintain margins above 30 per cent despite the investment into increasing programming hours and also investment in the digital platform in the form of new content and also the promotional expenses.We believe shift of viewership towards digital will have a negative impact on valuations of broadcasters in the medium term which may lead to correction of PE multiples. We maintain our Reduce rating on the stock and rollover to Jun’19.”

ZEE also reported a 84.76 per cent fall in consolidated net profit for the quarter ended on March 31, 2018. “The fall is basically because of the last year Q4FY17 they had exceptional item of Ten Sports business. There was a credit in FY17 because of Ten Sports deal,” Taurani added.

However, the management has guided for ad. revenue growth above industry averages (10%-12%YoY) led by traction in viewership across GEC and other genres; Dolat estimated estimated an ad. growth of 15 per cent YoY in FY19. Subscription revenue is also estimated to grow 14 per cent YoY in FY19 supported by higher ARPU in phase 3 digitization and adoption of HD channels.

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