ZEE Entertainment: Elara says 'Buy' ZEEL stock, gives 80 per cent upside target

ZEE Entertainment Enterprises Ltd has been awarded a 'Buy' rating by Elara Securities, indicating a promising 80% upside potential for its stock. This announcement on Friday highlights the prospects for ZEE Entertainment, despite recent challenges in its advertising revenue streams.

Elara noted that the company's FY25 advertising revenue was at 70% of pre-Covid levels. Despite this, it foresees a 7% growth year on year for FY26, primarily due to a low base effect. The firm projects a steady growth trajectory of 3.5% in the medium term. Moreover, ZEE has taken strategic steps to adapt to the shifting advertising landscape.

In the recent fiscal year, ZEE's margins improved by 390 basis points, attributed to cost efficiencies and reduced losses in the ZEE5 segment. Elara expects a modest gain in EBITDA margin compared to FY25. The valuation of Zee Music, part of the portfolio, is estimated between Rs 5,000-6,000 crore, aligning with existing listed players.

Elara stated, "Factoring in this and digital segment resulting in an attractive implied valuation (Rs 1700 crore) for the core broadcasting, a potential value unlocking opportunity exists. We introduce FY28E and retain EBITDA/EPS estimates for FY26E-27E. We maintain our target at Rs 200." This target values broadcasting at 11 times P/E for June 2028E and OTT at 3 times price/sales.

ZEE's advertising revenue dipped 24.6% year on year in Q4 due to viewers shifting focus to sports events such as the Champions Trophy and IPL-25. This was compounded by a weaker advertising regime and an election-led high base from the previous year. Nonetheless, ZEE is actively diversifying its client base, targeting emerging businesses, and refocusing on 'free-to-air' channels. Elara expects a 7% growth in FY26E, influenced by ad demand recovery in the latter half of the year.

Additionally, Elara forecasts a 4.6% compound annual growth rate (CAGR) in advertising revenue till FY28E. Subscription revenue rose by 3.9% year on year, building on a low base of the previous year. ZEE5 recorded a noteworthy growth of 15.8% year on year. FY25 was significant for ZEE5 with EBITDA losses reducing by 49.6% year on year.

Furthermore, Elara commented, "While subscription revenue was flat sequentially (up 0.4%), the 3.9% YoY growth was on a low base of last year in the absence of NTO 3.0. ZEE5 grew a strong 15.8% YoY. Amid lower incremental benefits of NTO3.0, we believe growth hereon will be a function of better user growth and revenue scale-up led by pricing. FY25 was notable for ZEE5 as EBITDA losses declined by 49.6% YoY. Further reduction in losses shall be driven by revenue growth than cost control exercises. We expect subscription revenue CAGR of 4.6% in FY25-28E."