Prabhudas Lilladher's research report on Zee Entertainment Enterprises
ZEEL reported weak operational performance with a multi-year low EBITDA margin of 12.8% (PLe of 14.5%) due to 1) FTA withdrawal of ZEE Anmol 2) weak ad-environment and 3) continued investments in content and marketing. We cut our EPS estimates by 34%/24% for FY23E/FY24E as 1) domestic adenvironment is weak due to rising inflationary pressure faced by FMCG companies 2) persistent growth challenges in the subscription business due to pricing embargo coupled with non-fructification of B2B deals on OTT side 3) widening losses in ZEE5 (highest ever EBITDA loss of Rs2,352mn since separate disclosures began) and 4) continued investments in content and marketing which is turning out to be a drag on profitability. Nonetheless, we believe, current operational weakness is revenue led and once the overall adenvironment improves in 2HFY23, EBITDA margins would recover sharply as benefits of operating leverage will start kicking in.
Outlook
Consequently, we expect EBITDA margin of 18.5%/21.1% in FY23E/FY24E respectively. Though there are clear near term challenges, we maintain our BUY rating with a revised TP of Rs308 (22x FY24E post-merger EPS) given impending merger with SPNI which is a key re-rating lever, in our view
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