ZEE gains 5% in weak market on strong June quarter performance

Shares of Zee Entertainment Enterprises (ZEE) surged 5 per cent to Rs 379 in Wednesday's intra-day trade on the BSE in an otherwise weak market riding on the company's strong June quarter performance.

The media and entertainment company posted 54 per cent year on year (YoY) jump in its consolidated net profit of Rs 530 crore in Q1FY20, on lower taxes and improved operating performance as compared to a profit of Rs 344 crore in the year-ago quarter.

ZEE posted revenue growth of 13 per cent YoY to Rs 2,001 crore in Q1FY20, on the back of surge in subscription revenue by 37 per cent YoY to Rs 709 crore.

The company said the growth was driven by the strong performance of domestic broadcast and digital businesses. Domestic advertising growth of 4.2 per cent YoY is considerably lower than the growth in past quarters. This is primarily on account of the decision to convert our two leading FTA channels to pay, which significantly impacted the ad growth for the quarter, it said.

EBITDA (earnings before interest, tax, depreciation and amortization) margin improved by 100bp YoY to 32.9 per cent, primarily led by better operating performance of Zee5 platform with its growing domestic subscriber base.

The stock is currently trading at 18x FY21E P/E, which is inexpensive, and this would prevail until further deal clarity emerges, analysts at Elara Capital said quarterly update.

However, the brokerage firm said its estimates remain largely unchanged as positive impact of higher subscription was offset by negative impact of lower ad growth. It still believes a favorable deal indicates the promoter group hold on business strategy post the announcement will trigger a slight rerating.

“ZEE’s struggle and ambiguity due to promoter stake sale to bail out the Essel group since the past 6-8 months will likely end shortly. This itself may lead to rerating.  The company’s superior execution, industry leading growth, margins, and viewership share deserve higher multiple. However, the sharp deterioration in its BS/FCF in FY17-19 and lag in the digital business are constraints. Improvement in FCF and acceleration in the digital business are vital triggers,” according to analyst at Dolat Capital.

The brokerage firm maintains ‘accumulate’ rating on the stock with target price of Rs 408 per share.


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