Prabhudas Lilladher's research report on Zee Entertainment Enterprises
We increase our EPS estimates by 6%/2% for FY26E/FY27E and upgrade our rating to BUY (earlier HOLD) with a TP of Rs137 as we revise our target multiple to 11x (earlier 10x) amid sustained improvement in operating performance since last 4 quarters. Despite a weak ad-environment, ZEEL reported better than expected performance with EBITDA margin of 13.1% (PLe 12.5%) led by cost optimization efforts and narrowing losses in ZEE5. In FY25, ZEEL’s content and employee cost was down 10.4% and 9.0% respectively while operating loss in ZEE5 almost halved leading to 390 bps expansion in EBITDA margin. While this is commendable, we believe true operating leverage benefit of the ongoing cost optimization exercise is overshadowed by a weak ad-environment.
Outlook
Assuming a modest 8.0% CAGR in ad-revenue on a low base of FY25 is expected to result in 440bps expansion in EBITDA margin over next 2 years given the cost reset. Backed by sharp earnings recovery and attractive valuations (10.4x/8.9x our FY26E/FY27E EPS) we upgrade the stock to a BUY with a TP of Rs137 (11x FY27E EPS).
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