ZEE Entertainment shares drop on Q3 results, ahead of NCLT hearing. Will the stock test 52-week low?

Shares of ZEE Entertainment fell 4 per cent in Tuesday's trade after the company reported a 91 per cent plunge in December quarter profit. The scrip fell 3.71 per cent to hit a low of Rs 210.40 on BSE. At this price, the scrip was just 4.7 per cent away from testing its 52-week low of Rs 200.50 hit on June 20, 2022. Analysts are largely concerned over ZEE’s ad revenues amid continued investments. Yet they have price targets that suggest up to 54 per cent potential upside for the stock. All eyes would be NCLT's hearing on Sony merger due later on Wednesday.

Emkay Global said ZEE's ad revenue fell 15.6 per cent YoY, which was much sharper than 11 per cent decline that it anticipated, reflecting continuing macroeconomic challenges. With heightened inflation, near-term ad spends are expected to remain muted, it said. Emkay said the company's reported subscription revenue grew 13.2 per cent YoY, primarily due to catch-up revenue related to deposits made by Siti.

"With NTO3.0 implementation coming into effect from February 1, 2023, we expect subscription revenue growth to improve, albeit with a lag. EBITDAM remained under pressure as investments remained elevated. Owing to slower recovery in ad revenue and continued investments, we have cut our FY24/FY25 Ebitda estimates by 4-5 per cent. We have also cut our target multiple to 8 times (from 10 times), given structural challenges faced by the broadcasting industry and the company’s slower market share recovery," it said. The brokerage has a target of Rs 260 on the stock.

ICICI Securities said NCLT’s final hearing is due today and that the merger with Sony is likely to be the most important focus area for investors in the near term.

It said Zee's revenue was muted on account of subdued demand environment as FMCG companies kept ad-spends under control to counter raw material inflation.

"As the company continued to invest in content creation, Ebitda declined 29.5 per cent YoY. Multiple one-offs and exceptional items impacted net profit (down 92 per cent YoY). We have cut our earnings estimates by 14 per cent for FY24E and our target by 15 per cent. We maintain our HOLD rating on the stock," it said while suggesting a target of Rs 225.

Nuvama noted that Zee5 achieved its highest-ever DAUs, reflecting stickiness. Zee Music Company’s Hindi movies acquisition share improved to 50 per cent from 42 per cent in FY22, and it is the second-largest music label with 9.2 crore subscribers on YouTube.

"50-plus shows and movies (including six originals) were released on ZEE5 during Q3. Also, the company continues to gain network shares in the south cluster and further strengthen its position. Strong usage seen in the digital business with higher engagement evident in an increase in MAU/DAU and watch minutes," it said.

What Nuvama did not like was Ebitda loss at Zee5.

"While Zee5 revenue growth was encouraging, Ebitda loss extended to Rs 2820 crore (versus Rs 276.9 crore in Q2FY23). PAT fell due to exceptional items pertaining to revenue recognition of Siti Networks, impairment of NCDs from Zee Learn, merger-related costs and provision for DSRA," it said while suggesting a target of Rs 325 on the stock.

Kotak Institutional Equities has cut FY2023 adjusted EPS estimate for ZEE by 24 per cent and FY2024/25E merged company  earnings (pro forma) by 16-17 per cent, as it factors in weak outlook and execution. This brokerage has a revised target of Rs 255 on ZEE.

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