ICICI Direct is bullish on Zee Entertainment has recommended buy rating on the stock with a target price of Rs 540 in its research report dated October 11, 2018.
ICICI Direct's research report on Zee Entertainment
Consolidated revenue came in at Rs 1975.9 crore, better than our estimate of Rs 1856.8 crore. Domestic ad revenue grew 23.3% (vs. our expectation of 20% YoY growth) boosted by Zee5 revenues while overall ad revenue growth was 22.7% YoY (vs. our expectation of 18.1%). On the subscription front, domestic subscription growth came in at 25.9% YoY (vs. our expectation of 15% YoY) boosted by early deal closures and better monetisation of phase III markets. International subscription grew 1.9% YoY EBITDA came in at Rs 675.7 crore, better than our expectation of Rs 594.3 crore, growth of 37.6% YoY. Consolidated EBITDA margins came in at 34.2% vs. our expectation of 32.0%. EBITDA growth was owing to operating leverage playing out Reported PAT came in at Rs 386.7 crore (vs. expectation of Rs 390 crore) owing to higher than expected tax outgo, with tax rate of ~40.4% vs. expectation of ~33.3%.
We note that while Zee’s market share gain across genres and bouquet offering lends it a competitive advantage, the outlook ahead will largely be led by digital strategy success. The OTT space, nascent currently, warrants a huge content spending strategy and ability to fight out with the global biggies. While we maintain our BUY rating (given the recent price correction), we now value the company at 27x FY20E P/E (vs. 30x earlier) to arrive at a target price of Rs 540. The lower target multiple is on account of uncertainty that digital space poses.
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