MOSL: ZEE ENTERTAINMENT (Neutral)-Weak recovery, viewership loss; margin guidance cut for second quarter in a row

ZEE ENTERTAINMENT: Weak recovery, viewership loss; margin guidance cut for second quarter in a row

(Z IN, Mkt Cap USD2.5b, CMP INR197, TP INR215, 9% Upside, Neutral)

 

• Zee Entertainment (Z)’s EBITDA/PAT jumped 56% YoY (8%/28% miss) on a lower base, as ad revenue was up 2.2x YoY driven by the lower impact of the second wave v/s the previous year. However, it was still 23% below pre-COVID levels.
• We revise down our EBITDA/PAT estimate by 12% for both FY22/FY23 for the second straight quarter (after last quarter’s 5–7% cut), factoring in FY23 EBITDA at 16% above FY20 levels – as weak recovery, coupled with an intensifying content spend, should hurt earnings. Maintain Neutral.

 

EBITDA/PAT up 56% YoY on lower base (8%/28% miss)

• Consolidated revenues grew 35% YoY to INR17.7b (-10% QoQ; 5% beat), as ad revenue was up 2.2x YoY, driven by the lower impact of the second COVID wave v/s the first wave. Compared with pre-COVID levels (1QFY20), domestic ad revenues were lower by 22.7%.
• Zee’s total operating expenses grew 31% YoY to INR14.3b, higher than estimated, on account of higher content and marketing costs. It incurred additional costs of INR270.6m related to the shifting of shooting locations to ensure uninterrupted operations amid the lockdowns.
• The content cost increase was attributed to original content production, which has largely continued at alternate locations across states during the lockdowns.