Buy Zee entertainment enterprises; target of Rs 195: ICICI eecurities

ZEEL’s overall ad revenue was down 17.9% QoQ/3.1% YoY to INR 9.1bn, 6.7% lower than our estimates. Domestic ad revenues were down 18.5% QoQ/3.6% YoY to INR 8.7bn, impacted by cricket and India’s general elections. Subscription revenue was up 4% QoQ/8.8% YoY in Q1FY25 to INR 9.9bn. Revenue from ‘other sales and services’ were INR 2.3bn aided by movie releases. Employee expenses, at INR 2.3bn, were down 11.5% QoQ/13% YoY. EBITDA was INR 2.7bn (up 29.2% QoQ/ 75.3% YoY), against I-Sec’s INR 2.3bn estimate. EBITDA margin was 12.8%, (+306bps QoQ/+490bps YoY). ZEEL reported a consolidated profit of INR 1.3bn.

Outlook
In Q1FY25, ZEEL’s EBITDA margin expanded 306bps QoQ, beating our estimates. This was driven by cost optimisation efforts such as right-sizing its tech team for the OTT offering and reducing marketing costs. Management believes that most of the cost-driven EBITDA margin improvement is already reflected in Q1FY25 results. There is still some room for efficiency-driven cost savings in Q2FY25. Beyond that, it will be driven by operating leverage from revenue uplift. Management has also guided for ad revenue growth driven by rural recovery from H2FY25 and inflation-linked growth in subscription revenues. We believe that ZEEL is likely to be a key beneficiary of the potential rural demand recovery. Additionally, the improving balance sheet strength should boost investor confidence in the stock. Maintain BUY. MoneyControl