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Zee Q1 Review: Analysts Slash Target Price Citing Rising Investments, Delay In Market Share Recovery

Brokerages cite high costs, delay in market share recovery as key concerns for Zee Entertainment.

<div class="paragraphs"><p>Zee Entertainment channels. (Source: BloombergQuint)</p></div>
Zee Entertainment channels. (Source: BloombergQuint)

Most analysts slashed target price on Zee Entertainment Enterprises Ltd. after the company's first-quarter profit missed estimates.

The entertainment firm reported a 41% sequential fall in net profit in Q1, dragged by rising investments in new content and delay in market share recovery, in a weak ad market. The earnings came post-market hours on Friday.

Q1 FY22-23 (Consolidated, QoQ)

  • Revenue fell 21% at Rs 1,846 crore

  • Ebitda fell 53% at Rs 235.76 crore (Bloomberg estimate: Rs 330 crore)

  • Ebitda margin 13% versus 22%

  • Net profit fell 41% at Rs 106.6 crore. (estimate: Rs 213 crore)

Brokerages flagged the loss in viewership share in key channels, removal of free-to-air channel, challenge in free cash flow generation and macro headwinds are major concerns as they cut FY23-25 earnings estimates.

They also pegged the completion of Zee-Sony merger transaction as the major catalyst for re-rating of the stock. However, they identified rising traction in ZEE5 as a positive due to encouraging metrics and the decision to raise annual pricing pack.

Shares of Zee Entertainment shed 2% in intraday trade before closing with 1.65% losses. Of the 23 analysts tracking the company, 20 maintain 'buy', one suggest 'hold' and two recommend 'sell'. The stock has fallen 26% in 2022 so far compared to 3.8% rise for the benchmark Sensex.

Here's how brokerages view the company's Q1 performance and growth prospects.

Emkay Global

  • Reiterates 'buy' and raises target from Rs 310 to Rs 315, an implied upside of 30.2%

  • Q1 performance was muted with revenue/Ebitda missing estimates while advertising revenues declined due to loss in viewership share in key channels.

  • Removal of FTA channel and macros headwinds weighed on June quarter earnings.

  • Pricing embargo on linear TV subscription, timing of some B2B deals and renewals weighed on domestic subscription revenues.

  • Cuts FY23-25 EPS by 3-14% to account for weak Q1 numbers and expects delay in the merger process to be a dampener for the stock.

  • Expects the company's decision to raise pricing of annual pack of ZEE5 by 40% to be beneficial.

  • Believes that ZEE5 metrics remain encouraging and expects low commodity costs and festive season to aid ad revenue recovery.

  • Company has spent aggressively on content despite a weak ad market.

  • Believes that merger with Sony and timely synergy benefits are crucial for re-rating of the stock.

  • Key Risks: Delay in market share recovery, weakness in domestic subscription growth, weak theatrical performance for in-house movie production and surge in content investments.

Dolat Capital

  • Reiterates 'buy' with the target price slashed to Rs 285 from Rs 320, still an implied upside of 17.87%.

  • June quarter performance was in-line while adjusted earnings slipped to decadal lows.

  • Free cash flow generation continues to be a challenge with rise in investments across businesses even as market share recovery remains delayed.

  • Legacy issues of Zee will subside after the impending Sony-Zee merger.

  • Expects Sony-Zee merger transaction to take six to nine months to be completed.

  • While the company's performance is disappointing, the sharp correction in stock prices (36%) since Zee-Sony deal announcement offers favourable risk-reward in the medium term.

  • Key Risk: Collapse of Zee-Sony merger deal remains a key risk.

Prabhudas Lilladher

  • Reiterates 'buy' and slashes target from Rs 358 to Rs 308 apiece, still an implied upside of 27.38%.

  • Q1 earnings are along expected lines while Ebitda margin slipped to multi-year low of 12.8%.

  • Network share declined to 16.1% from 17.1% on a sequential basis