Zee Entertainment Enterprises - Can ad revenue growth be more gradual? - ICICI Securities

Zee Entertainment Enterprises' (ZEEL) Q2FY21 ad revenue dip of 26% YoY and adjusted EBITDA (provision for Siti's receivable of Rs812mn) at Rs4bn, down 43%, were unimpressive. We expect ad revenue to get hurt from IPL and loss of viewership in Marathi and Bangla in H2FY21. Subscription revenue may be flat on likely NTO-2.0, and ZEE5 revenue growth was also uninspiring despite good growth in MAUs. We see FY21 as washout year, and all beat is on revival in FY22. Programming cost inflation has been lower than expected, but high inventories mean upside risk is intact. We cut our FY21 EPS estimates by 14% but increase by 4.4% for FY22 on lower programming cost. Our target price rises to Rs208 (from Rs199) at 12x FY22 PE (unchanged). Maintain BUY. Key points to watch out: 1) Recovery in ad revenue and viewership share in key GECs, 2) progression in ZEE5 and 3) inventories/FCF generation.

- Related parties. It was expected as Siti Network defaulted on bank payments. ZEEL has provided 1) Rs812mn for overdue receivables and put Siti on cash-and-carry mode; and 2) ZEEL has given corporate guarantee of Rs2.05bn for Siti's loans, and it has provided Rs971mn in Q2FY21. Receivables from Dish TV dipping to Rs5bn (Rs4.6bn net of provision) in Q2FY21 from Rs5.84bn in FY20 is the only positive.

- Ad revenue growth YoY only in Q4FY21: ZEEL's domestic ad revenue dipped 26% YoY to Rs8.6bn due to contraction in realisations while volumes have recovered on airing of fresh content. ZEEL expects flat ad revenue in Q3FY21 as IPL is eating its pie, and growth (YoY) is likely only from Q4FY21. ZEEL acknowledged erosion in viewership in Marathi and Bangla market; working on refresh content to bounce back. The viewership share loss will also hurt ad revenue, in our view. For detailed analysis on viewership refer BARC rating - week-38; week-40 and week-42.

- Flattish comparable subscription revenue in FY21: Subscription revenue grew 10.6% YoY to Rs8bn due to inclusion of music business (earlier under other segment), while L2L growth was 2.8% YoY. High court has reserved order on implementation of NTO-2.0, and ZEEL has not taken tariff hike, which should flatten subscription revenue in FY21; however, it sees normal growth from FY22. It expects strong growth in ZEE5 driven by significant investment in original content (25 originals released in Q2FY21) but off-set by non-renewal of contract with large telco. International subscription revenue rose 7.1% YoY to Rs831mn probably led by ZEE5.

- ZEE5 EBITDA breakeven pushed by one-year to FY24: ZEE5 revenue at Rs989mn, up 4.2% QoQ, is uninspiring considering strong content line up, and improvement in MAUs to 55mn (+38% QoQ) and DAUs to 5.2mn (+30% QoQ). Further fresh content on TV should help drive ad revenues from catch-up on ZEE5. EBITDA loss was Rs1.9bn (vs Rs1.45bn in Q2FY21) on higher investment in content. ZEEL has pushed ZEE5 EBITDA breakeven guidance to FY24 (earlier FY23).

Shares of ZEE ENTERTAINMENT ENTERPRISES LTD. was last trading in BSE at Rs.182.05 as compared to the previous close of Rs. 183.35. The total number of shares traded during the day was 926655 in over 8788 trades.

The stock hit an intraday high of Rs. 191.25 and intraday low of 180.75. The net turnover during the day was Rs. 171522596.

Source : Equity Bulls

Keywords