Hold Zee Entertainment; target of Rs 195: ICICI Direct

ICICI Direct's research report on Zee Entertainment

Zee Entertainment’s (Zee) Q2FY21 operating performance was marred by one-offs (which have become more of a routine – third time in the last five quarters). Results, as expected, were weak with ad revenues down ~26% YoY given the fall in ad pricing that is yet to recover to pre-Covid levels. Like to like subscription growth of 2.8% YoY (like to like domestic subscription growth of 2.3% YoY), was primarily led by Zee5 growth. Higher-than-expected A&P costs and provision for Siti Networks receivables impacted EBITDA, which was at Rs 313.7 crore, down 54.7% YoY with margins at 18.2%, down 1445 bps YoY. Reported PAT was at Rs 94.1 crore, down 77.2% YoY, impacted by Rs 97.1 crore DSRA liability write-off of Siti Networks.

Outlook

One-off write-off along with losing market leadership in key markets of Marathi and Bangla languages is a concern. While ad volumes improved QoQ owing to fresh content, ad realisation remains low. Full recovery in ad pricing ahead of festive season will be the key. Potential implementation of NTO 2.0 and impact ahead also remains unknown. We will turn buyers once ad recovery, improved cash flows & related parties mess eases. We maintain HOLD rating with a target price of Rs 195/share (11x FY22 P/E).

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