Zee Entertainment Shares Fall As Analysts Raise Concerns On Advertising Spends
Cautious commentary by consumer goods makers suggests return of advertising spends will be gradual.
Shares of Zee Entertainment Enterprises Ltd. fell after Credit Suisse raised concerns about fast-moving consumer goods companies' spending on advertising.
A gradual recovery in TV advertisement spending by consumer goods firms marks a tepid third quarter for media companies, including Zee Entertainment Enterprises, Credit Suisse said.
"While incremental raw material pressure has eased, the cautious commentary from fast-moving consumer goods companies on demand suggests that the return of ad spends may be a bit more gradual," the research house said in its investor note.
FMCG ad spending was impacted because companies needed to protect their profitability from rising input costs, which have dragged down gross margins, according to the research firm.
The ad spend as a percentage of sales for FMCG companies was similar to the lows observed during the first wave of the Covid-19 outbreak, it said.
The revenues that media companies get from these advertisements may take a bit longer to pick up, the research house said.
Adding to this, the viewership of Zee Entertainment was also hampered after Zee Anmol, which catered to free-air viewers, was taken off, Credit Suisse said. "Content fatigue" across Hindi, Tamil, and Marathi languages too contributed to the decline in viewership, which is now being corrected, it said.
The subscription revenue has been growing at a tepid rate despite rising Zee5 and Zee Music subscriptions, as the court has stayed price increases on linear TV subscriptions pending the NTO 2.0 order, the note said.
The implementation of the deadline for this new tariff order, which was extended to February 2023 by the telecom regulator, seems to have broad industry buy-in, Credit Suisse said, adding that it should revive near-term growth in this category.
While linear TV subscription will remain a moderate growth category beyond years when price increases are taken into account, the drag on subscription vertical growth should reduce as Zee5 and Zee Music ramp up, the research firm said.
As the media company attempts to regain its viewership from the free to air channels, its subscription growth will continue to be lacklustre in the quarter ending December, Credit Suisse said.
Still, Zee should be able to maintain its sequential profitability despite a slower recovery in revenues, it said.
Credit Suisse says that because no big movies are coming out, content costs may stay the same as they were in the second quarter.
Credit Suisse said the legacy issue with a Zee Group entity may not "meaningfully" delay its merger process with Sony Pictures. The comment comes after IDBI Bank Ltd. approached the National Company Law Tribunal for pending dues of Rs 1.49 billion (Rs 149 crore) under this legacy issue, the note said.
In an exchange filing dated Sept. 22, 2021, Zee Entertainment announced that it has agreed to merge its operations with Sony Pictures Networks India.
The stock fell as much as 1.87% before closing at Rs 258.3, down 1.56%. The benchmark Nifty 50 ended 1.3% lower at 18,414.90. The relative strength index stood at 45.
Of the 24 analysts tracking the stock, 20 suggested 'buy', two recommended a 'hold', and two maintained a 'sell' rating on the stock, according to Bloomberg data. The 12-month average consensus price target implies an upside of 21.1%.