Zee Entertainment
BSE SENSEX
35,246
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
10,717
Z IN
960.4
568.0/8.7
619 / 477
-2/3/-2
1242.0
58.4
10 May 2018
4QFY18 Results Update | Sector: Media
CMP: INR591
TP: INR690 (+17%)
Buy
Strong quarter; healthy outlook
Robust ad revenue drives EBITDA:
Ex-sports revenue grew 21% YoY to
INR17.3b (5% beat), led by robust ad growth (+24% YoY to INR10.5b).
Subscription revenue rose 14% YoY to INR5.5b. However, a 44% surge in
SGA cost (launch of Z5) limited EBITDA growth to 8% YoY (INR5.1b, 17%
beat). Consol. revenue/EBITDA grew 13%/8% YoY, while consol. margin
shrunk 135bp YoY to 29.3%. Adj. PAT fell 42% YoY to INR2.3b (38% beat),
led by higher taxes. Domestic ad revenue (excl. sports, RBNL and IWPL)
jumped 22% YoY, led by healthy ad spend across categories. Domestic
subscription (ex-sports) grew 18% YoY, aided by higher catch-up revenue
(from closure of content deals during the quarter).
FY18 performance:
Consol. revenue/EBITDA grew 4%/8% YoY, while adj.
PAT was up 8% YoY.
Concall highlights:
1) Ad revenue growth in FY19 is expected to be higher
than 11-12% growth in the TV ad market. 2) Low-teens growth is expected
in subscription revenue in FY19. 3) EBITDA margin likely to remain above
30% (FY19). 4) Management plans to foray in the Malayalam genre (FY19)
and also add new channels in other genres in regional markets.
Ad revenue to continue driving growth:
We expect healthy consol. revenue
CAGR of 15% over FY18-20 (we, thus, maintain our revenue estimate), led
by a) robust ad revenue growth (15%) and ZEE’s healthy viewership share
and b) subscription revenue CAGR of 13% over FY18-20. Management
hinted that incremental margins (over 30%) would be re-invested in other
avenues such as Z5, new channel launches and movies. We, thus, cut
EBITDA margin by 120bp for FY19/20 (EBITDA/PAT estimate down by
3%/6% for FY19/20). We expect consol. EBITDA/PAT CAGR of 18%/17% over
FY18-20.
Valuation View:
We value ZEE at 35x P/E (3-year average) on FY20E EPS of
INR19.7, arriving at a TP of INR690 (v/s earlier INR705). Premium valuation
is justified by a steady 17% EPS CAGR over FY18-20 and improving RoIC to
25%. ZEE’s strategy of reinvesting incremental margin to fuel growth offers
consistent growth potential. Maintain
Buy.
Financials & Valuations (INR b)
Y/E MARCH
2018 2019E 2020E
Sales
66.9
76.6
87.8
EBITDA
20.8
24.4
28.7
NP
13.9
15.9
18.9
EPS (Rs)
14.5
16.5
19.7
EPS Growth (%)
8.4
14.1
19.0
BV/Share (Rs)
78.7
91.7 107.8
P/E (x)
40.8
35.7
30.0
P/BV (x)
7.5
6.4
5.5
EV/EBITDA (x)
26.6
22.4
18.7
EV/Sales (x)
8.3
7.1
6.1
RoE (%)
19.6
19.4
19.7
RoCE (%)
16.5
18.1
19.7
Estimate change
TP change
Rating change
Aliasgar Shakir – Research analyst
(Aliasgar.Shakir@motilaloswal.com); +91 22 6129 1565
Hafeez Patel – Research analyst
(Hafeez.Patel@motilaloswal.com); +91 22 6129 1568
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.