ICICI Direct recommended hold rating on Zee Entertainment with a target price of Rs 150 in its research report dated July 26, 2020.
ICICI Direct's research report on Zee Entertainment
Zee Entertainment’s (Zee) Q4FY20 performance truly had a plot twist of a Bollywood potboiler. The washout ad revenues (~15% YoY decline) were on expected lines (economic slowdown & some Covid-19 impact) but stupendous subscription growth of ~31% YoY was a pleasant surprise (Zee5 contribution now making the difference). The costs, however, told a different story, with a slew of one-offs such an accelerated amortisation expenses of Rs 259.8 crore, provision of Rs 343 crore for doubtful debts, exceptional loss of Rs 113.7 crore towards goodwill write-off and Rs 383.5 crore MTM losses on overseas investments. EBITDA loss, consequently, was at Rs 283.9 crore with reported net loss of Rs 766.7 crore.
Outlook
The near term concerns include soft ad outlook as well as impact of NTO 2 (if it gets implemented). The wish-list of possibly better disclosures and cash generations, is what should be looked at, apart from overall improvement in ad environment and Zee5 ramp up. Notwithstanding attractive valuations, we maintain HOLD, with a target price of Rs 150/share, valuing it at 9x FY22 P/E. We would turn believers once we see visible changes in cash generation and more (rather better) disclosures.
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