ICICI Direct recommended hold rating on Zee Entertainment with a target price of Rs 410 in its research report dated dated April 10, 2019.
ICICI Direct's research report on Zee Entertainment
Zee Entertainment (ZEE), like most other broadcasters, is facing a challenge to maintain distribution reach under Trai’s new tariff order (NTO) implementation. While the chaos of tariff implementation is industry wide, it is pertinent to note that Zee’s absence from some of the distribution platform operators (DPOs) base bouquet (refer page 2) is a matter of concern. Therefore, we believe the interim NTO led disruption could impact the subscription as well as ad revenue growth trajectory in FY20. Consequently, we lower our FY20E domestic subscription as well as advertisement revenues estimates to ~7% and ~10% vs. 15% and 16%, respectively. Furthermore, we continue to believe that while promoter stake sale in the near term is a certainty given their need to pay off debt, deal valuation and structuring would be key. We downgrade the stock to HOLD and cut the target price to Rs 410/share. Promoter stake sale at higher price and subsequent open offer (if any), remain upside risks.
Outlook
Zee’s absence in base bouquet could be detrimental. Consequent, to revenue estimates, we revise our FY20 earnings downwards by 10.7%. Therefore, we downgrade the stock to HOLD. We introduce FY21 estimates and roll over our valuations, valuing it at 20x FY21E P/E (vs. 25x FY20E) to arrive at a target price of Rs 410.
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