Zee stock down 25% so far this year, but analysts remain gung-ho, predict as much as 65% upside

Zee stock down 25% so far this year, but analysts remain gung-ho, predict as much as 65% upside

Zee Entertainment Enterprises (ZEE) share price rose 2.3% intraday on Monday amid bullish market momentum. However, the stock is still down nearly 25% so far this year. Earlier last week Zee reported its January-march quarter earnings where the company reported 34% on-year drop in net profits while total revenue increased 18%. Zee also announced a dividend of Rs 3 per equity share of face value Re1. The stock rose to hit an intraday high of Rs 243.65 apiece before trimming some gains during the afternoon session.Motilal Oswal: BUYTarget price: 400

“The current inflationary environment has softened the ad market outlook across categories while the rise in FTA channels has hit the Pay-TV subscription revenue,” said analysts at Motilal Oswal. They added that the series of new content launches and investment in OTT should improve network market share and sustain better KPIs for Zee5. The brokerage firm has largely retained its estimates factoring in EBITDA/PAT CAGR of 17%/25% over FY22-24E. Analysts, however, remained concerned if high content spending coupled with a weak revenue outlook could hit the near-term earnings of the company.

Prabhudas Lilladher: BUYTarget price: Rs 358

Analysts at Prabhudas Lilladher have cut their EPS estimates for Zee owing to the domestic ad environment being weak due to rising inflationary pressure faced by FMCG companies, and persistent growth challenges in the subscription business due to pricing embargo, and near term margin headwinds given continued investments in ZEE5. “While there are near term challenges, zee is taking steps to improve viewership share in linear business and is seeing improved traction in ZEE5 (revenue up 50.1% YoY) which should yield results over long term,” they added.

The brokerage firm sees a revenue/PAT CAGR of 9%/21% over FY22-24E while pinning a target price of Rs 358 per share, translating to an upside of 47%.

Kotak Securities: AddFair value: 275 per share

With the most cautious view on Zee, Kotak Securities believes that Core business deterioration continues at Zee. “Zee’s EBITDA margin has collapsed to 20% from 30% in the past two years due to viewership share loss, weak ad environment, regulatory embargo on subscription, higher content amortization pertaining to elevated inventory and modest increase in OTT investments,” analysts at Kotak said. They added that Netflix’s plans to launch ad-supported subscription pack and James Murdoch+Uday Shankar’s acquisition of 40% stake in Viacom 18 would result in increase in competitive intensity in TV/OTT for Zee.

Kotak Securities sees a 12.8% upside from today’s high to the fair value price. The fair value has been brought lower from Rs 350 apiece earlier, valuing Zee at about 17X FY2024E MergeCo earnings.