ZEE Entertainment Stock price ready for a Takeoff?: Ad Revenue Recovery Holds the Key!
ZEE Entertainment Enterprises Ltd (ZEEL) reported a remarkable 180% year-on-year (YoY) increase in net profit for the December quarter. However, its advertisement revenue has declined for the ninth time in the last 10 quarters. Analysts are not optimistic about the company’s margin improvement in the near future. They have reduced their earnings estimates for ZEEL by 2-7%, but opinions differ on the stock’s prospects following the recent correction.
The overall economic environment remains sluggish, especially in urban areas, which is impacting advertising growth. ZEE management has successfully completed the initial phase of its turnaround plan, focusing on cost optimization. The current focus is on increasing revenue.
We have adjusted our FY25-27 Ebitda estimates by 4-11% based on the Q3 performance and anticipated slower advertising growth. Without an increase in advertising revenue, it will be challenging for the company to significantly enhance margins. We maintain a “Reduce” rating on ZEEL and have lowered our target price to Rs 130 (8 times December 2026E Broadcasting Ebitda), as stated by Emkay Global.
MOFSL mentioned that ZEEL aims to achieve a CAGR of 8-10% in total revenue with its existing portfolio and improve Ebitda margins to 18-20% by FY26, leading the industry. A sustainable recovery in ad revenue is crucial for meeting these goals and potentially increasing multiples. Due to weaker growth in domestic ad revenue, we have reduced our FY25-27E revenue/Ebitda estimates by 2-3%. While Zee’s valuations are appealing, a rebound in domestic ad revenue and a positive outcome in the ongoing ICC rights litigation with Star are essential for a potential revaluation, according to MOFSL.
This brokerage has set a target price of Rs 130 for the stock.
In the fourth quarter of FY25, ZEEL is anticipating significant progress on the margin front. The company’s key areas of focus for growth will include investments, movie launches, and revenue generation. The next installment of FCCB is scheduled for August 2025. Nuvama mentioned that subscription revenue growth is expected to continue for a few more quarters, along with additional price increases. Additionally, there has been an improvement in rural local advertising spending. The language market is showing signs of recovery, and the retail sector is also performing well. Domestic players are showing aggressiveness in the music rights business, while international players are not as active, as highlighted by ZEE in its conference call.
Despite challenges in ad revenues due to a sluggish macro environment, particularly impacting FMCG and other consumption sectors, Nuvama has revised its target price for ZEEL to Rs 185 (previously Rs 195) with a ‘BUY’ recommendation. The company is effectively managing costs while strategically investing in growth, as evidenced by a 2% increase in A&P spending, according to JM Financial, which has a Buy rating on the stock.
JM Financial acknowledges that future margin improvements will heavily rely on growth opportunities, with hope stemming from rural recovery. ZEEL’s initiatives such as international ad revenue growth, pricing adjustments, and regional channel strategies are expected to contribute to this growth. However, revenue expectations for FY25-27 have been slightly adjusted by 2-4%, impacting EPS estimates. JM Financial maintains a BUY rating with an unchanged target price of Rs 200.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.