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MOSL: ZEE ENTERTAINMENT (Neutral)-A stellar show-uncertainty over promoter stake sale a key concern

Zee Entertainment: A stellar show; uncertainty over promoter stake sale a key concern

(Z IN, Mkt Cap USD6.2b, CMP INR457, TP INR475, 4% Upside, Neutral)

 

• Another episode of robust performance: Consol. revenue grew 18% YoY to INR21.7b (in-line), driven by robust ad/subscription growth. Domestic ad revenue increased 21% YoY, led by contribution from ZEE5 and a higher network viewership share. Domestic subscription revenue grew 29% YoY, led by a favorable base and monetization of phase-III subscribers. EBITDA, thus, grew 27% YoY to INR7.5b (5% beat), with the margin expanding 250bp YoY to 34.8%. This, coupled with higher other income and fair value gains, led to PAT growth of 50% YoY to INR5.6b (+26% YoY adjusted for fair value gains). For 9MFY19, revenue/EBITDA/adj. PAT increased 19%/27%/24% YoY.
• Concall highlights: (1) ZEE expects to deliver better-than-TV industry ad revenue growth and low-teens subscription revenue growth in FY20. (2) FY20 margins are guided at 30%+, despite investments in ZEE5. (3) The company is confident of announcing the buyer for promoter stake by Mar/Apr’19 (as guided earlier). (4) ZEE plans to increase investments in ZEE5, given the sustained traction in the digital business.
• Outlook upbeat: We expect revenue CAGR of 14% over FY19-21, led by 15/12% domestic ad/subscription revenue growth. Consistent uptick in viewership share and a higher contribution from ZEE5 should support ad growth, while higher penetration of TV and HD channels should drive subscription growth. We expect EBITDA/PAT CAGR of 16%/20% over FY19-21, factoring in 30% (INR9.5b) increase in content cost (traditional + digital).