Q2 Results: Zee Entertainment’s Profit Misses Estimates On Exceptional Item

Zee Entertainment Enterprises Ltd.’s quarterly profit fell short of the lowest analyst estimate as it provided for loans extended to related parties.

Net profit rose 6.9 percent year-on-year to Rs 413.20 crore in the quarter ended September, according to its exchange filing. That compares with the Rs 478-crore consensus estimate of analysts tracked by Bloomberg.

The company missed the profit estimate because of exceptional items worth Rs 171 crore, including provisions after related parties delayed repayment.

Promoter debt secured by Zee Entertainment shares and related-party transactions have been concerns for investors. More than 90 percent of the Essel Group’s stake in the broadcaster is pledged to raise debt. Essel Group earlier sold 11 percent in Zee Entertainment and offloaded renewable energy assets to repay half of the Rs 11,000 crore due to lenders, including mutual funds, by September-end.

Meanwhile, revenue rose 7.4 percent over last year to Rs 2,122 crore in the three months through September. Analysts had estimated Rs 2,137 crore. The company’s advertising revenue rose 1.2 percent to Rs 1,224.70 crore while subscription revenue rose 19 percent to Rs 723.50 crore.

Ad trends should remain muted for the broadcasters with a worsening market, said Citi Research in its preview report for second-quarter earnings. However, domestic subscription trends should continue to remain healthy post the new tariff order, the report said.

Zee Entertainment’s operating profit, or earnings before interest, tax, depreciation and amortisation, rose 4.7 percent to Rs 684.2 crore, while operating margin contracted 90 basis points to 32.2 percent.

Shares of the Mumbai-based firm rose 1.85 percent ahead of the earnings announcement compared to a 1.07 percent gain in the Nifty 50 Index.

Key Highlights From Analyst Call

• Impact of tariff order has settled down.
• A bank has prematurely and unilaterally adjusted the (Zee Entertainment’s) amount of fixed deposit of Rs 200 crore against dues from related parties; we’re seeking legal advice to take appropriate action.
• Cash flow seen to improve by fourth quarter; expect positive cash flow from next fiscal.
• Advances are high due to film and content acquisitions; see no further advances towards acquisitions.
• Had an all-India viewership of 18 percent; OTT (over-the-top) platform Zee5 recorded a peak daily active user base of 9 million.
• The overall industry estimate for television contracted but despite that, we have managed to grow by 2 percent.
• Receivables have risen in the current quarter due to delay in receivables from Dish TV and Siti Cable.