ICICI Direct recommended hold rating on Zee Entertainment with a target price of Rs 500 in its research report dated January 16, 2019.
ICICI Direct's research report on Zee Entertainment
The key highlight for Zee Entertainment’s (Zee) Q3FY19 performance was the strong performance on the domestic subscription front (~28.6% YoY growth vs. estimate of ~18%) and domestic advertisement growth of ~20.6% YoY (even on a high base of 30.2% growth in Q3FY18). International ad grew ~40% YoY. We note that while subscription revenues were led by catch up revenues from deal closures and better monetisation of phase III markets, the domestic ad performance was a reflection of the strong market share gain and ad monetisation at Zee5 Given the robust topline growth, margins expanded ~250 bps YoY to at 33.8% (vs. estimate of 33.2%) Reported PAT at Rs 562.4 crore (vs. expectation of Rs 459.7 crore) was boosted further by MTM gain on investments of ~Rs 37.6 crore and higher other income (one-time miscellaneous income from sale of export license along with VAT refunds – not quantified).
We highlight that while Zee’s market share gain across genres and superior growth in linear television is positive, the long term outlook will largely be led by digital strategy success ahead. Therefore, consummation of stake sale and preferred partner holds key. Moreover, we expect Trai’s Tariff order implementation to drive some volatility in the near term, especially on the subscription front. Therefore, we downgrade the stock to HOLD, with a target price at Rs 500/share (25x FY20E P/E).
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