LKP Research is bullish on Zee Entertainment Enterprises has recommended buy rating on the stock with a target price of Rs 573 in its research report dated October 11, 2018.
LKP Research's research report on Zee Entertainment Enterprises
Zee’s topline in Q2 FY19 grew by 24.9% yoy as both advertising revenues as well as domestic subscription revenues grew strongly. Advertising revenues grew by 23% yoy and 5.6% qoq continuing with the trend observed in the last three quarters. This is a result of heavy advertising spends from the corporates and success of its channel portfolio. Subscription revenues were robust at 26% growth in the domestic markets on early closure of some contracts and Phase III monetization. Reduction in operating costs despite launch of Zee5 in Q4 (from 37.7% in Q1 as a % of sales to 36.8% in Q2) has led to strong margin performance at 34.2% up 230 bps qoq and 320 bps yoy. Even the other expenses and advertising costs as a % of sales along with employee costs have reduced, thus leading to superior margin per.
We have slightly reduced our margins and thereon our FY 19E and FY 20E estimates slightly on higher depreciation (stemming from movie inventory), higher Zee5 content costs, launch costs in Kerala and lower other income. We have BUY rating on the stock (@ 30x FY 20E earnings), with a reduced TP of ₹ 573. Key concerns on the stock are 1). The proliferation of digital diaspora, which may eat into TV revenues. 2). Higher than expected cost escalation associated with digital business.
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.