A customer uses a mobile device in front of a variety of flat-screen televisions displayed at an electronics megastore in Mumbai, India. (Photographer: Vivek Prakash/Bloomberg)

What Street Made Of Zee Entertainment’s June Quarter Performance

Most analysts remain bullish on Zee Entertainment Enterprises Ltd. as the company’s net profit and ad revenue for the three months ended June met estimates.

Though the subscription was slightly below the estimate, brokerages like CLSA, Macquaire and Anand Rathi said the investments in digital play Zee5 will boost revenue. The digital initiative has started yielding returns and Zee5 is now among the top 5 entertainment platforms in India, the company said in an exchange filing.

Of the 38 analysts tracked by Bloomberg, 26 have a ‘Buy’ rating on the stock. Eight rate it ‘Hold’, while four recommend a ‘Sell’.

Shares of Zee Entertainment traded at Rs 518.30 apiece as of 3 p.m. The stock rose 3.3 percent intraday.

Also read: Q1 Results: Zee Entertainment Profit Matches Analyst Estimates In June Quarter

Here’s what brokerages had to say on Zee after its first quarter earnings:

Motilal Oswal

  • Maintains ‘Buy’ and revised target price to Rs 680 from Rs 690.
  • Expects revenue and earnings before interest, tax, depreciation and amortisation to grow at an annualised rate of 14 percent and 17 percent, respectively, in 2 years.
  • Reinvestment of incremental margins offers consistent growth potential.
  • Investment in original content to limit Ebitda margin expansion at 160 basis points to 32.6 percent in 2 years.
  • Premium valuation justified by steady improvement in profitability.
  • Concerns about digital impacting TV revenues largely overplayed.

CLSA

  • Maintains ‘Buy’ on the stock.
  • Strong growth in core broadcasting business, along with Zee5, to aid revenue.
  • Zee remains the leading non-sports TV network.
  • Expects to deliver 14 percent compounded annual growth rate in ad revenue over two years.
  • Expects earnings to grow at an annualised rate of 25 percent over financial years through 2018-2020 after paying a preference dividend and considering Zee5 losses.
  • Plans to launch Zee5 app globally in the ongoing financial year.

B&K Securities

  • Upgrade stock to ‘Buy’ from ‘Outperform’; target price remains unchanged.
  • Expects higher ad revenue on increasing viewership share in Hindi and regional general entertainment channels.
  • Management to improve treasury practice, shift investments from high-yield to safer instruments.
  • Execution and earnings prospects remain strong, viewership trends are reassuring.

Nomura

  • Maintains ‘Buy’ and lower its target price to Rs 632 from Rs 738 earlier to factor in higher cost of capital.
  • Key beneficiary of advertisement industry recovery; expects ad revenue to grow at an annualised rate of 18 percent over financial years through 2018-2020.
  • Healthy margins despite digital investments.
  • Lowered revenue estimate to factor in low domestic subscription growth and weakness in international business.
  • Higher content investment to reduce competitive pressure can affect margins.
  • Pull-back in ad spend by the FMCG segment (contributes 50-55 percent) to weigh on ad growth.

Citi

  • Upgrade stock to ‘Buy’ from ‘Neutral’; target price kept unchanged due to underperformance in the last two years.
  • Risks around over-the-top content threat looks priced in.
  • Risk-reward appears more positive as Zee’s core business strengthens.
  • Expects a stable margin of 31 percent despite OTT investment.
  • Expects revenue and Ebitda to grow at an annualised rate of 14 percent over three years.
  • The management aims to be the No. 1 entertainment app in 18-24 months.

Macquarie

  • Maintains ‘Outperform’ rating.
  • Expects the top line and Ebitda (ex-Zee5 investments) to grow during the ongoing financial year
  • Zee to outperform TV industry ad growth on increasing market share across genres.
  • Success of Zee5 remains imperative for Zee to shift from TV to digital.
  • Estimates a 25:75 split between ad and subscription revenue by financial year through 2021.
  • Expects a continuous investment in original digital content for the next 10 years.
  • Expects investments in Zee5 to pick up in the second quarter.
  • The management expects Zee5 to breakeven in five years.

Morgan Stanley

  • Maintains ‘Overweight’ rating.
  • Zee to benefit from strong industry ad spending.
  • Don’t see margins falling off dramatically despite investment in Zee5.
  • Key variables: higher spends on content and promotional expenses for Zee5, implementation of new TRAI tariff order over the next three to six months.
  • Global OTT platforms can impact viewership share for Zee5.

Anand Rathi

  • Upgrade stock to ‘Hold’ from ‘Sell’; revised target price to Rs 560 from Rs 550.
  • Investment in new vertical, Zee5, to be healthy.
  • Zee to double investment in original content in the next few quarters.
  • Ad expenditure to rise.
  • Any loss in content ratings in the flagship channels is a key.

Bank of America- Merrill Lynch

  • Maintains ‘Underperform’ rating.
  • Limited clarity on traction of its new app Zee5.
  • No visibility on recovery of ad revenue in Middle East.
  • Marketing on digital platform ‘Zee5’ to pick up in the second quarter.
  • Trades at high valuation in context of growth.