Market share gains, pick up in ad growth to help Zee Entertainment

While there are multiple triggers, the recent stock surge caps near term gains

Rise in viewership of general entertainment channels for the second consecutive month, improvement in market share, and expected gains in revenue from advertising are positives for Zee Entertainment. 

Analysts at Elara Securities say the broadcaster reported strong performance in August and was able to gain market share across general entertainment and regional genres over the previous month. 

These gains may help the firm continue outperforming its peers on the advertising front. Analysts expect advertising growth, which had come off sharply in the June quarter, to improve. Sector advertisement growth — which was down 61 per cent in the previous quarter — is expected to recover to pre-Covid levels by October, led by the consumer sector. This could help improve revenue, which had declined 34 per cent in the June quarter. Suyog Kulkarni of Reliance Securities highlights revenue growth, operating profit expansion, as well as reduction in working capital as a key trigger for the stock. 

 

 

In addition to operational improvement, brokerages believe that the worst for the company — on the balance sheet front — may be behind. After two years of deterioration because of investments in content along with write-offs, the company indicated that it would be able to deliver free cash flow to net profit of 50 per cent from financial year 2021-22 (FY22). Higher corporate governance disclosures and induction of new board members, too, is seen in a positive light. 

Though this should help boost investor confidence, analysts are cautious on receivables, especially of subscription revenues from group companies Dish TV and Siti Networks. Analysts at Kotak Securities believe the stock could be up for rerating if the company cancels the capital-intensive Sugarbox project, and there is material improvement in operating and financials of its over-the-top application ZEE5. 

Another headwind would be the implementation of new tariffs, which could hit subscriptions.

While the stock has gained 63 per cent since the beginning of August because of multiple factors, there is little upside from the current level, as most of the positives are reflected in the price.