The stock has underperformed in the last six months when compared to the benchmark indices and the BSE 100 index
The Zee Entertainment
Enterprises stock has gained 14 per cent over the last two weeks on expectations of a gradual uptick in advertising growth, increase in viewership share and hopes of a recovery of dues from group companies
such as Dish TV.
Despite the recent recovery, the stock has been a key underperformer over the last six months, compared with the benchmark indices and the S&P BSE100 index. While the shares of the largest listed media company gained about 12 per cent during this period, the two indices are up over 33 per cent each.
The share pledge overhang, provisions related to Siti Network, muted advertising growth in recent quarters, and market share losses in key regional genres led to the underperformance.
Whether the stock sustains its recent run will depend on how it performs across key segments, especially the advertising space. Led by the fast moving consumer goods companies, which account for half of the total advertising spends on television, advertising revenues of networks such as Zee Entertainment
are expected to see a sharp recovery.
After a 64 per cent fall in the June quarter, the advertising segment’s revenues recovered a bit and were down 26 per cent in the September quarter. Most brokerages expect advertising revenue growth to be flat or post a slight growth in Q3, led by increase in advertising volumes and rates in select markets.
Gain in viewership share by broadcasters who lost out due to lack of original content is another positive. CLSA’s Deepti Chaturvedi highlights that Zee network’s viewership share is up 540 basis points (bps) from its lows and is up 160 bps after Indian Premier League. Its share at 23 per cent is above pre-Covid levels and is led by higher share in Hindi and regional entertainment channels. The Street will keep an eye out for viewership numbers as the new shows launched by the company have had limited impact while the share in the Marathi genre has weakened.
Hope of a recovery of dues from group firms (such as receivables from Dish TV of Rs 500 crore) could remove another major overhang for the company. Zee’s receivables from Dish TV have reduced from Rs 584 crore as of March to Rs 500 crore as of September.
Says Alankar Garude of Macquarie Capital, “Our analysis of Dish TV’s first half FY21 operating and financial performance suggest diminishing risk of any further mishap for Zee from a group entity.” Macquarie expects Dish TV to report Rs 300 crore free cash flow in FY21 with an increase in FY22.
While there is expected to be a rebound in advertising, investors should await clarity on payments from Dish TV, investments in content delivery arm SugarBox and the traction in over-the-top application ZEE5.