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.
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.
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.
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.
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