Despite strong ad growth and margin expansion, we remain sceptical about the potential upside to the current share price as we believe markets have already priced in sharp gains in the TV ad market by Zee, even though such gains look challenging to achieve unless the Hindi GEC space sees meaningful consolidation.
We continue to value the stock using DCF. Our TP of Rs 380 implies downside of 8.7%. We maintain our Reduce rating as we believe stock has run ahead of fundamentals. The key upside risk will be Zee’s ability to benefit from higher than estimated improvement in cable TV ARPUs.
Ad revenues were largely in line but 12% q-o-q growth in subscription revenues came as a bit of surprise and was 5% higher than our estimates. Management suggested that there some revenues pertaining to the previous two quarters were now reflected in this quarter’s subscription revenues and hence the sequential growth was not comparable. EBITDA margins expanded by 140 bps during the quarter to 27% and were up 21% quarter-on-quarter.
The company expects advertisers to accept Broadcast Audience Research Council ratings over the next three to four months. Management sees potential upside for its free to air channel, Zee Anmol, post acceptance of the BARC ratings.
Programming hours during the year increased 21% y-o-y for its flagship channel Zee and approximately 22 hours of fresh weekly programming have been added with the launch of its new Hindi general entertainment channel.