ZEEL shares drop post Q2 results; here are revised stock price targets

Shares of ZEE Entertainment Enterprises Ltd (ZEEL) fell over per cent in Friday's trade even as consolidated revenue, Ebitda and profit, thanks to one-off gains, beat analyst estimates. The top line growth was aided by the movie business even as advertisement revenue remained muted. Analysts noted that Zee5 losses moderated sequentially, led by operating leverage and cost management and that ZEEL indicated that investments in the segment has likely peaked.

Following the results, the stock fell 2.09 per cent to hit a low of Rs 257.30 on BSE.

Motilal Oswal said the gradual recovery in advertisement revenue amid improving spending by the FMCG segment appears to be a silver lining. A recovery, it said, could be seen in H2FY24 with the onset of the festive period, while the recent cricket world cup could drag some revenues in Q3FY24.

"The outlook on subscription revenue, however, is expected to improve with the implementation of NTO 3.0. The improvement in profitability in Zee5 is positive, but the digital segment remains in investment mode. The merged entity with a revenue scale of Rs 15,000 crore and Ebitda margins of 17 per cent as on FY23 is trading at 10 times EV/Ebitda on FY23 basis. We believe that the valuations do not capture the strong opportunity presented by the merged entity. However, any certainty around merger timelines would remain key monitorable," it said while suggesting a target of Rs 300 on the stock.

Nuvama Institutional Equities said ZEE's other sales and services soared 201 per cent YoY led by higher syndication and strong theatrical performance of movies (‘Gadar 2’). Zee5 revenue grew by 59 epr cent YoY while Ebitda losses narrowed due to operating leverage and prudent cost management, it said.

"In light of the overall good recovery in Q2FY24 and key hurdles to the merger finally getting addressed, we continue to be positive on ZEEL — valuing the core business (ex-Zee5) at 14 times PE and Zee5 at 3 times price/sales. This yields an unchanged target of Rs 430; retain ‘BUY’," it said.

Prabhudas Lilladher has retained its Buy rating on the stock with a target of Rs 314.

 

 

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