Dolat Capital's research report on Zee Entertainment
Zee’s Q4FY20 was weak with 15% YoY decline in ad revenues, multi-year low EBITDA margin of 16% (reported negative) in a quarter that wasn’t impacted by Covid, Rs 11bn write-offs, Rs 10.5bn rise in inventory in H2FY20 (Rs 15bn in FY20) and auditors’ qualification for liabilities not provided for worth Rs 4bn. MD & CEO ‘open letter’ as usual is upbeat (has to be) stating rebirth of company (Zee 4.0), 5Gs (governance, granularity, growth, goodwill, and gusto) etc is good to hear. But as is the saying ‘actions speak louder than words’; we would prefer tangible results (FCF followed by dividends) than mere stories that are stated since six quarters. Management commentary on improvement in BS viz. stable/declining inventories and on improvement in FCF is weak.
Outlook
Maintain Reduce with a TP of Rs 153 @ 10x FY22E EPS (Rs 157 earlier @ 10x). Our estimates were already suppressed factoring above. Improvement in FCF or change in management or buyout of Zee by strong strategic investors are potential triggers.
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