Emkay Global Financial's report on Zee Entertainment
Under Strategy 4.0, management has increased disclosures from Q1FY21 as promised earlier, which is expected to further improve in the ensuing quarters. Cash flow improvement through a reduction in working capital requirement is key for re-rating. In our view, resolution of balance sheet issues would have driven management to increase the disclosures. Strong execution (channel launches and market share gains) in the last few years and hope of not repeating balance sheet mistakes will regain investor interest. After two years of balance sheet deterioration on account of aggressive content investments and various write-offs, the management is confident on delivering FCF/PAT of 50% from FY22E.
We maintain our cautious stance on timely receipt of subscription receivables from Dish and Siti, as well as investments in SugarBox. The higher target multiple (15x PE on Sep’22 EPS) and the rating upgrade to Buy are predicated on changes brought in by management.
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