MOSL: ZEE ENTERTAINMENT (Neutral)-Impressive show but promoter stake sale overhang remains
ZEE ENTERTAINMENT: Impressive show but promoter stake sale overhang remains
(Z IN, Mkt Cap USD5b, CMP INR361, TP INR390, 8% Upside, Neutral)
- EBITDA exceeds estimate led by robust subscription growth: revenue increased 13% YoY to INR20.1b on account of strong 47% domestic subscription growth, partly offset by subdued 4% domestic ad revenue growth. While the implementation of NTO improved channel pricing and supported subscription growth, it also hurt ad growth due to weak viewership and the conversion of FTA channels into pay channels. Nevertheless, EBITDA grew 17% YoY, led by a 100bp margin improvement to 32.9%. Adjusting for the fair value gain, PAT was up 33% YoY to INR4.6b (13% beat).
- Concall highlights: (a) Domestic subscriber revenue is likely to grow by mid-20% in FY20. (b) Ad growth was soft, but is likely to revive in 2H. (c) ZEE maintained its EBITDA margin target of 30%+, which also factors in the increase in Zee5 content investment.
- NTO to drive steady subscription growth, ad growth to be back-ended: The upward reset in subscription revenue due to better channel pricing in NTO is likely to drive healthy 26% subscription growth in FY20. Our channel checks indicate that the ad market remains weak but should revive from the festive season. Against this backdrop, we build in moderate 11% domestic ad growth. Revenue/PAT CAGR is estimated at 14/16% over FY19-21. Note that our PAT estimates are revised upward marginally by 4% in view of lower SG&A costs.
- Valuation view: Despite the impact from NTO, we build in 16% PAT growth over FY19-21 due to the aforementioned reason. Yet, we maintain our neutral stance on the stock with a target price of INR390 (prior: INR400) on 18x P/E due to the overhang on promoter stake sale. In our view, the uncertainty over management control, strategic focus of the new investor and intensity of investments in the new business remains the key risk to earnings growth.
Zee Entertainment Enterprises is an integrated media and entertainment company engaged in broadcasting and content development, production and distribution of films via satellites. Co. is engaged in Hindi entertainment and movies; English content programming; sports channels and programming; religious and alternate lifestyle programming; music channels; special interest channels; and high definition channels with varied programming in over 169 countries globally. Also, on Zee Bollyworld channel, Co. dubbs or subtitles movies and series in English, French, Arabic, Russian, Mandarin and Melayu- Bahasa.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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