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MOSL: ZEE ENTERTAINMENT (Neutral)-Intensive content investment-Promoter stake sale remains key overhang

Zee Entertainment: Intensive content investment; Promoter stake sale remains key overhang

(Z IN, Mkt Cap USD5b, CMP INR361, TP INR400, 11% Upside, Neutral)

 

• Other business drives growth: Despite relatively subdued traditional business performance, ZEE reported healthy 17% YoY consol. revenue growth at INR20.2b (6% beat). This was primarily on the back of stellar growth in its other business on account of two movie releases, while domestic subscription/ad growth was at 4%/18%. EBITDA grew 12% YoY to INR5.7b (11% beat); margins however, contracted 120bp to 28.1%, impacted by steep 28% YoY increase in content cost. PAT stood at INR2.9b, up 26% YoY. However, adjusting for fair value gains and one-offs, PAT grew 132% YoY (5% beat). For FY19, revenue/EBITAD/adj. PAT grew 19%/23%/36% YoY.
• Concall highlights: (1) In FY20, ZEE expects to outperform industry ad growth estimated at low double-digit; it hopes to record low-teens subscription growth; it will revisit the same post 1QFY20, (2) FY20 margin guidance stands at 30%+, (3) In light of increasing competition, INR6.9b deposit and INR2.5b advances has been given to content aggregators for future content creation, and (4) Binding agreement for promoter stake sale to be signed by Jul'19.