ZEE share price may double in 1-2 years, says CLSA with 'Outperform' rating

ZEE share price: In its base-case scenario, CLSA has pegged ZEE share price target at ₹170, an upside potential of 70 per cent from current levels

CLSA on ZEE: Zee Entertainment share price dazzled in the stock markets today, surging 6.5 per cent in the intraday trade, after global brokerage CLSA maintained its 'Outperform' rating on the stock.

 

At 12:10 PM, the stock of the media company was trading 2.7 per cent higher at ₹102.04 per share, after hitting an intraday high of ₹106.8 per share. By comparison, the BSE Sensex index was up 0.66 per cent at the time of writing this report.

 

In its base-case scenario, CLSA has pegged ZEE share price target at ₹170, an upside potential of 70 per cent from current levels. Further, over the next two years, the stock may double from current levels, CLSA added.

 

 

This, the brokerage said, is on the back of "rock bottom" valuations of the stock, which is 8-times price-to-earnings (PE) multiple at present. Fundamentally, the brokerage sees the media house's focus on over-the-top (OTT) platform to drive ad revenue for the company.  ALSO READ | Stock Market LIVE Updates: Sensex 600 pts higher at 76,000; Nifty around 23,100; Nifty IT, Auto gain

 

"Zee Entertainment is India's number 2 network and is rapidly ramping up its OTT platform ZEE5. We believe the company's ad revenue growth will aid re-rating in the stock," CLSA said.

 

Going ahead, the brokerage estimates ZEE's Ebitda and net profit to deliver 22-23 per cent CAGR over FY26-27, driven by 6 per cent year-on-year ad revenue growth.

 

In the December quarter of the current financial year (Q3FY25), ZEE reported a 3.3-per cent Y-o-Y decline in revenues to Rs 1,978.8 crore with ad-revenues decreasing by 8.4 per cent Y-o-Y to Rs 940.6 crore due to slower than expected recovery in the market and sluggish festive season. However, its subscription revenues increased 6.6 per cent Y-o-Y to Rs 982.5 crore, limiting the downside.

 

In fact, ZEE5's revenue increased by 8.1 per cent Y-o-Y to ₹241.3 crore with 14 new shows/movies getting launched during the quarter, including seven originals. Thus, the platform's Ebitda loss declined to a multi-quarter low of ₹136.2 crore. This, coupled with cost optimisation efforts, supported ZEE's Ebitda margin to expand by 100 basis points to 16.1 per cent in Q3FY25.

 

"Since the merger fallout with Sony, cost rationalisation has been a focal point to drive operational improvement and ZEEL is making steady progress on that front. In 9MFY25, ZEEL's content and employee cost was down 14 per cent and 9 per cent, respectively. Further, Ebitda loss in ZEE5 is at multi-quarter lows, indicating a renewed frugal approach in digital business," said those at Prabhudas Lilladher.  ALSO READ | Senco Gold pops 5% for 3rd straight day on promoter's acquisition of shares

 

They added: We believe true operating leverage benefit of the ongoing cost optimisation exercise is overshadowed by weak ad-environment. While cost frugality is commendable, recovery in the ad-market is critical for re-rating.

 

The brokerage retained its 'Hold' rating after the company's Q3 results with a share price target of ₹137 (12x Sep-26E EPS).

 

Those at JM Financial, too, retained their 'Buy' rating on the stock with a target price of ₹200 as it liked ZEEL's balancing act between cost measures and investment towards growth.

 

"In FY25E, we expect 80 per cent ad revenue recovery from FY20 level and estimate advertisements to grow 5.0 per cent/3.0 per cent in FY26E/27E, respectively. ZEE aims to boost ad growth by tapping other sectors. These steps may aid only partial recovery given that FMCG, with significant salience, may continue to hit ad growth and only urban-led demand pick-up may improve growth materially," noted analysts at Elara Capital with a 'Buy' rating on the stock and a ₹ 200-target price.   ALSO READ | Here's why Tata Communications shares rose 3% in trade on March 20  At the end of the December quarter, Promoter and Promoter Group held 3.99 per cent stake in Zee Entertainment Enterprises, while 96.01 per cent was with Public, ZEE shareholding pattern shows.  Within Public shareholders, Mutual Funds held 11.48 per cent stake, and FPIs held 20.05 per cent stake.