Zee numbers turn analysts cautious, but better disclosures earn it brownie points

Zee numbers turn analysts cautious, but better disclosures earn it brownie points


NEW DELHI: Day after Zee Entertainment posted a major drop in June quarter earnings, analysts have turned cautious on the stock.But in Mumbai trading on Wednesday, the stock traded nearly 3 per cent higher at Rs 178 in an upbeat market.

Post market hours on Tuesday, the company posted a 95 per cent year-on-year drop in consolidated net profit at Rs 29.28 crore. Total income tumbled 36.6 per cent to Rs 1,338.41 crore, which was attributed largely to an impact from the pandemic.

Analysts, however, lauded the improvement in disclosures, which they said will help build investor confidence. This quarter, the company for the first time reported a broad break-up of inventory and content advances and key financials of its OTT platform ZEE5 in signs of improved corporate governance.

“Zee’s Ebitda declined 67 per cent YoY to Rs220 crore in June quarter, which was 37 per cent below our estimates, though revenues were broadly in line with estimates. Ebitda miss was on account of higher-than-estimated content costs partly attributable to higher amortisation expense and syndication content,” said Jaykumar Doshi, an analyst at Kotak Securities.

In its presentation, the company said though no fresh episodes of existing shows were produced during the quarter, leading to a drop in programming costs, this was partially offset by the content shot at homes and purchase of licensed content for linear and digital businesses.

Advertisement revenues dropped 64.5 per cent to Rs 421.06 crore, but domestic subscription revenue increased 6.2 per cent.

By breaking down revenues, operating costs, other income and depreciation, Doshi increased FY22-23 EPS estimates by 8-10 per cent.

“Inexpensive valuations coupled with likely easing of governance concerns can offer a short-term trade. However, we stay cautious on the stock for now,” he said.

Kotak Securities has a ‘reduce’ rating on the stock with a price target of Rs 185, a potential upside of 6 per cent.

Analysts at Emkay Global said they remain watchful of timely subscription receivables from Dish and Siti, and investments in Sugarbox. “Thanks to an improvement in disclosures and policies, along with corrective steps,” they upgraded the scrip to ‘hold’ with a revised price target of Rs 190 at 11 times September FY22 EPS.

Analysts believe a re-rating for the stock is possible if the company takes a few more corrective steps. Consistent FCF generation, appointment of a representative of key institutional shareholders on the board, cancellation of the Sugarbox project in view of weak macros and Jio’s plan to launch 5G sooner than later and controls and transparency around movie buying are some of the steps Kotak and Emkay analysts believe can help the company in this direction.

Earnings wise, management expects ad revenues to bounce back from H2FY21. Conversely, subscription revenue is anticipated to moderate, due to an inability to effect price hikes. While the viewership share has eroded meaningfully during the lockdown, it is starting to reverse, Emkay noted.

Credit: Stocks-Markets-Economic Times

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