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MOSL: ZEE ENTERTAINMENT (Neutral)-Weak ad revenue growth impacts EBITDA margins

(Z IN, Mkt Cap USD4b, CMP INR300, TP INR300, Neutral)

Outlook on subscription growth hazy
** 3QFY20 revenue momentum was hit by weak consumer advertisement spends in a slowing economy and higher expenses, which dragged margins; the same trend is expected to continue for another quarter.

** As ad/subscription revenue outlook looks weak due to TRAI’s latest order over capping of channel prices, we have lowered our FY20/FY21 revenue estimate by 4%/8% and EPS estimate by 14%/18%.

Revenue miss by 5%, EBITDA down 25% YoY
** Zee Entertainment’s (ZEEL) overall revenue declined 6% YoY to INR20.5b (5% miss) on account of lower-than-expected ad revenues.

** Ad revenue declined 16% YoY to INR12.3b (6% miss), led by decline in ad spending by
advertisers. Domestic ad revenue was down 16% YoY as volume growth for consumer companies declined.

** Subscription revenue grew 15% YoY to INR7.1b (in-line), with domestic segment witnessing 22% YoY growth, which was offset by 17% decline in international subscription revenues.

** EBITDA at INR5.7b (6% miss), declined 25% YoY; EBITDA margin plummeted by 720bp YoY and stood at 27.6%, partly due to rise in other expenses.

** ZEEL reported long-pending trade receivables worth INR7.5b from Dish TV and Siti Cable, which has now been given a revised recovery plan spanning 12-24 months. This forms ~31% of total receivables worth INR24.2b (2QFY20).

** Credit loss of INR376m (for time value of money) has been provided in other expenses. Adjusting for the same, EBITDA margins would stand at 29.5% (down 530bp YoY).

** Reported PAT at INR3.5b (18% miss), declined 38% YoY due to INR400m of loss in fair value of assets.

** Adjusted PAT, however, declined 26% YoY to INR3.9b (8% miss).