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22% Ad Revenue Growth, ZEE5 Launch, GEC Viewership Boost Help ZEEL Close Q1 On Strong Note

18-July-2018
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22% Ad Revenue Growth, ZEE5 Launch, GEC Viewership Boost Help ZEEL Close Q1 On Strong Note

Zee Entertainment Enterprises Ltd (Ltd), has reported a healthy Q1 FY19 particularly backed by a good performance of it's Hindi General Entertainment channels and regionals as well. The Hindi GECs, including FTA channel Zee Anmol and pay channel Zee TV, have been the number one channels through the quarter. ZEE5, launched in the last quarter, has led to this growth as well. With revenue growth of 15.0 percent YoY to Rs 1772 crore on the back of better performance in advertising revenue which reported 18.6% YoY growth, ZEEL is surely off to a great start to FY19.

Dolat Analysis & Research Themes (DART)  VP- Research, Karan Taurani said, "Q1 of FY18 saw a growth of 6-7 percent and the basic fact is that there has been good growth in this quarter. The key verticals such as FMCG and consumer durables have recovered and grown above the industry average. The management also indicated that the growth will be led by H1 and in H2 they will see a slightly lower growth. Industry average growth is expected to 12-13 percent and on full-year basis, they lend to surpass the industry average ad growth for Zee basically."
He further mentioned that on the investor call, the company mentioned that ZEE5 is among the top five apps in terms of ranks by app Ally. "They have announced 14 original shows and will launch 70 more shows on Zee5. I think that will be the major headwind for the margin if nothing else because you to invest in digital content and the content is any way expensive in nature. But I think it will take time to scale up as Amazon, Hotstar and Netflix have really scaled up the game." 

Domestic Broadcast Business 
ZEEL continued to improve its viewership share as the number 1 network in the non-sports entertainment segment, said Zee in the report. In the first quarter of FY19, ZEEL had an all-India viewership share of 19.2 percent. The increase in viewership was driven by the improved performance in several regional language markets while the network maintained its leadership in the pay and FTA Hindi GEC segment. Zee TV maintained its leadership position in the pay Hindi GEC segment.

ZEEL’s Regional entertainment portfolio delivered strong performance across markets during the quarter. The English movie channel, Zee Studio was renamed as &flix during the quarter. With a total of 400+ movies in library and 52 premiers, it will give a larger-than-life experience to the audience.

The International Business
During the quarter, revenue was Rs. 1,951 million. The advertising revenue grew by 2.1 percent on a comparable basis (In Q1FY18, Rs. 198 mn of advertising revenue pertaining to sports business was part of International ad revenue) while the subscription revenue declined by 6.6 percent. Break-down of international business revenues for the first quarter is as below: 

• Advertisement Revenue of Rs. 590 mn 
• Subscription Revenue of Rs. 934 mn 
• Other Sales and Services of Rs. 427 mn

ZEEL’s movies and Music Business

Zee Studios, a movie production division, released three movies during the quarter – Parmanu (Hindi), Beyond the Clouds (Hindi) and Nude (Marathi). While Parmanu was well received at the box office, Nude won critical praise and was selected for screening at several international film festivals. 
On the other, Zee Music Company, the music label, continued with its library expansion of both Bollywood as well as regional music. Further improving its performance, the music label registered ~4.1 billion views on YouTube in Q1. Zee Music Company is the second most subscribed Indian music channel on YouTube with over 19 million subscribers. 

Digital Business- ZEE5

Since launch in mid-February, has been gaining significant traction and witnessing growth across viewership metrics of MAUs, video views and engagement levels. It is already amongst the top 5 entertainment platforms in the country, as per the ZEEL. The network is confident that the pace of subscriber addition will further accelerate driven by the strong line-up of original content. “We have already released 14 ZEE5 Originals across six languages and have 20 more originals lined up for release in Q2. We are on track to be the largest digital original content producer in the country and have plans to launch one tentpole property every quarter. Karenjit Kaur, our first tentpole property, was released and its trailer registered more than 25 mn video views on YouTube in a week’s time. Along with the strong slate of original content, ZEE5 will premiere 150 exclusive movies across languages over the next twelve months," said the report.

Subhash Chandra, Chairman, ZEEL, commented, "The year has commenced on a positive note, for both the company as well as the economy. The growth in consumption, now being driven by rural as well, bodes well for advertising spends. In addition, increasing availability and adoption of the digital medium, across different sectors, will have a positive effect on the country's growth trajectory."   

As per a report released by DART, growth in incremental youth viewership remains to be a challenge for TV. It reports, “The management expects the ad revenue to grow above industry averages on back of growing viewership in the regional genre. The management maintains its margin guidance of 30 percent plus which factors all the new launches and investment in regional genre. ZEE continues to trade at fair valuations of 30.1x/26.7x based on FY20/FY21 earnings estimates; we maintain our reduce rating with Sep’19 TP of  565 based on 31x one-year fwd.”

Another point in the report read, “Revenue and margins in line with estimates; lower tax rate led profitability. EBITDA margin improved 50bps YoY at 31.9 percent due to better gross margins; this was despite higher programming cost, which grew 14 percent YoY on the back of increased programming hours. PAT grew 30 percent YoY to 3,259mn (DCMe: 3,194mn) due to lower tax rate (39%) during the quarter; however, this was despite lower other income and higher depreciation costs.”

“Zee is estimated to report ad growth of 15 percent YoY in FY19, above industry averages led by traction in the regional genre. The management maintains it EBITDA margin guidance of over 30 percent despite new launches (Malayalam channel to be launched by year-end), increased investment in regional genre and higher content cost on digital platform; EBITDA margin is estimated to be in a narrow band of 31.5%-32% over the next two years due to above headwinds,” said the DART report.

Acceleration in the Digital business (ZEE5) is another reason for the growth. the report further added, “We believe the shift of viewership towards digital will continue to have a negative impact on valuations given the aggressive investments by OTT giants like Amazon/Netflix. We believe entry of more new players like Apple and Times internet in the OTT segment will have a negative impact on TV viewership as youth audience continues to move towards Digital. Also, the launch of Jio FTH in near term will further have a negative impact on TV viewership. We maintain our Reduce rating on the stock and rollover to a Sept’19 target price of  565 based on 31x one-year fwd. PER.”

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