LKP Research is bullish on Zee Entertainment has recommended buy rating on the stock with a target price of Rs 595 in its research report dated January 16, 2019.
LKP Research's report on Zee Entertainment
Zee’s topline in Q3 FY19 grew by 17.9% yoy as both advertising revenues as well as domestic subscription revenues grew strongly. Advertising revenues grew by 22% yoy and 21.6% qoq higher than the trend observed in past few quarters. This is a result of heavy advertising spends from the corporates, success of its channel portfolio and its growing digital business. Subscription revenues were robust at 23.3% yoy growth in the domestic markets on low base, early closure of some contracts and Phase III monetization. Flattish operating costs despite launch of Zee5 in Q4 FY18 at 36.8% qoq and reduction in other expenses and advertising expenses via good cost control (19.9% v/s 22.7% yoy) has led to strong margin performance at 34.8% up 60 bps qoq and 240 bps yoy despite digital spend increase. In Q3, Zee gained market share on Hindi GEC front (#1 non sport player with a market share of 20.2%, a growth of 30 bps qoq from 19.9% qoq), while it remained either #1 or #2 in all the regional businesses. Higher depreciation led by increased movie inventory and investments in digital as well as TV content was offset by higher other income which led to a 50% yoy growth in reported net profits. Adjusted net profits grew by 26.2% to Rs 5.25 bn.
Outlook
We maintain our BUY rating on the stock (@ 26x FY 21E earnings). Stake sell by the promoters (~50%) remains an overhang on the stock though we believe that it will be positive in long term.
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