Zee Q2 results beat expectations again, merger key

Zee Entertainment Enterprises Ltd.’s Q2 FY24 was ahead of estimates led by movies and syndication revenue. Revenue/Ebitda/adjusted profit after tax were +20/12/56% YoY.

Increase in viewership share (+90 basis points QoQ), reduction in digital losses (-8/-26% YoY/ QoQ) and content inventory by ~Rs 3 billion QoQ were other key positives.

Impending Sony-Zee merger remains the key trigger. We presume merger completion shall take another ~2 million (viz. delisting of Zee and listing of merged entity shares). These shall lead to a new positive dawn viz. merger synergies, cash and cash equivalents of ~Rs 90 billion on day one, hopefully cleaned-up balance sheet etc.

Closure of merger coupled with improvising ad outlook, viewership share gains, losses peaking in digital (off-set by higher losses in sports) are additional positives.

We reduce EPS by 1/15% for FY24/25 (0/7% for merged operations) to factor softer ad growth. Reiterate ‘Buy’ with target price of Rs 320 at 25 times FY26E merged-co EPS (effective target price for merged co is Rs 375 since Zee’s shareholder will get 85 share in Sony for every 100). BQ Prime