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Zee leaves brokerages bearish with falling ad revenue, failed merger, likely market share loss
Brokerages slashed their target price for Zee Entertainment after a sequentially tepid Q3 show dampened investor sentiment for the television broadcaster. For the December quarter of FY24, Zee reported a 140 percent on-year increase in profit at Rs 58.5 crore. However, it fell 52 percent from the last quarter's Rs 122.96-crore profit. Zee’s consolidated revenue declined 3.1 percent to Rs 2,073 crore, which was lower than Emkay Global’s estimate. Zee reported an advertising revenue of Rs 1027.4 crore, down 3.3 percent from Rs 1063.4 crore a year ago. Its ad revenue took a major toll from the ICC Cricket World Cup, going down for the sixth straight quarter, as users watched fewer movies and used the streaming platform Zee5. The broadcaster noted that the domestic ad revenue was impacted by Cricket World Cup 2023 during Q3. "While Q3 saw some seasonal festive uptick, the overall pace of ad environment recovery continues to be slow," the company said in an investor presentation. The company said that the soft advertising environment was partially offset by a pickup in subscription revenue. Among other headwinds, international brokerage CLSA said that with the Zee-Sony merger called off, Zee will have to revisit its costs. The company has approached the NCLT for enforcement of the merger as per the agreement. Punit Goenka had offered several solutions and proposals to Sony, but none was accepted. Emkay said that failure of the merger can also have possible cases of shareholder activism. “Multiple legal issues can result in potentially significant losses in case of an unfavourable verdict, even as such issues consume management bandwidth,” noted the domestic brokerage. In its conference call, Zee outlined its future plan, as the management believes that there is significant headroom for margin improvement. The management hopes to see the overall revenue average 8 to 10 percent annual growth rate with the current portfolio and get back to 18 to 20 percent EBITDA margin. There are three aspects of the turnaround plan: (a) frugality, (b) optimisation, and (c) sharp focus on quality content. The company will implement steps to optimise spending and ROI. Focus will remain on quality over quantity, which might result in a lower number of original shows. Source - MoneyControl
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