Prabhudas Lilladher has given Buy recommendation for Zee Entertainment Enterprises with a target price of Rs. 399 in its research report issued on Nov 12, 2021

Prabhudas Lilladher’s research report on Zee Entertainment Enterprises

We cut our EPS estimates by ~3-6% over FY22-24E as operating leverage benefits arising from planned content revamp will take some time to accrue with higher A&P spends in the interim. ZEEL’s network share was up 70bps QoQ to 17.7% in 2QFY22 on the back of 30+ new launches across markets. New channels contributed 1.2% of viewership share and management highlighted plans to launch ~28-30 new shows going ahead. Even on the digital side, new launches in 2H are expected to be higher than 1H (24 new shows were launched). We maintain our positive stance on ZEEL as 1) gradual re-opening of economy should result in strong domestic ad-revenue recovery in 2H 2) digital business has started gaining momentum (revenue up 17% QoQ) on the back of engaging content catalogue and 3) uncertainty surrounding boardroom decision risks is expected to reduce given the impending merger with SPNI (due diligence has started and is expected to be complete within stipulated timeline).

Outlook

Maintain BUY with a revised TP of Rs399 (Rs405 earlier) valuing the stock at 23x FY24 EPS of Rs17.3 (inclusive of merger synergy benefits). Near term pressure on margins and subscription revenues due to implementation of NTO 2.0 are key risks to our call.

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