Zee posted strong performance in Q1 as the topline was buoyed by advertising revenues which grew by 25% y-o-y on strong market share gain in all of its genres and channels. Hindi GEC lost a bit of market share but remained at No 3 position, while Zee Marathi continued to extend its lead. Zee Telugu pipped its opponents and became the No 1 channel in AP for the first time. & TV was the highlight of this quarter as the channel gained a good market share in Q1.
Going forward, subscription revenues may start witnessing growth in Q4 of FY16 as DAS implementation in Phase 3 gets a deadline of December 31, 2015. Also the increased action in a la carte payment scheme may gather steam in FY16 and post better revenues than FY15. However, the true growth in this business will come in FY17. On advertisement business front we believe that Zee will outperform the industry estimate of 12-13% in line with the Q1 numbers. .
On the margin front, we expect the margins to improve hereon having the high cost launch expanses gone behind them. In line with strong ad revenues growth and improving margins we have increased our estimates for Zee on both topline as well as margin front. Due to these positives, we may see an expansion of Zee’s target multiple to 30x FY17e earnings multiple and arrive at an increased target price of Rs 437. We maintain ‘buy’ on the stock.