Reduce Zee Entertainment Enterprises; target of Rs 167: Prabhudas Lilladher

Prabhudas Lilladher's research report on Zee Entertainment Enterprises

We cut our FY25E EPS estimates by 6% as operating margin may remain under pressure in near term as recalibration measures taken to reset the cost base by re-visiting content, technology, marketing and employee spends will take some time to unfold post-merger fall out. While Zee Entertainment Enterprise’s (ZEEL) operational performance was in-line with our expectation with EBITDA margin of 10.2% (PLe of 10.1%) bottom-line was impacted by merger related cost of Rs603mn. Likely improvement in ad-environment and accrual of benefits from NTO 3.0 is likely to result in sales CAGR of 10% over next 2 years with EBITDA margin of 11.3%/16.8% in FY24E/FY25E.

Outlook

We retain REDUCE with a revised TP of Rs167 (earlier Rs151) as we roll forward to FY26E valuing the stock at 12x (no change in target multiple). Effectiveness of the strategy pertaining to cost re-alignment, quantum of digital losses and recovery in ad-environment are key factors to watch out for in near term.

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Zee Entertainment Enterprises - 14022024 - prabhu