Zee reported robust 19% ad growth notwithstanding softness in industry ad growth and Zee TV’s viewership. Good execution in sports and cost management led to 13% EBITDA outperformance. We like Zee’s strategy of augmenting content production (a must in democratization of distribution) without any meaningful impact on profitability, returns and risk profile of the business. We raise FY2017-19E adjusted earnings by 3-4% and roll over to June 2018 with TP of `510 ( `475 earlier), valuing it at 28X June 2018E EPS (ex-RPS impact).
Zee reported robust 19% y-o-y ad growth powered by industry growth (13-14%), India-Zimbabwe cricket (2-3%), Sarthak acquisition (1.5%) and market share gains in regional genres adjusted for weakness of Zee TV (1-2%). Zee’s ad growth is impressive in view of 2-3% deceleration in industry ad growth and 2% drop in Zee TV’s ratings share. Domestic/overseas subscription revenues grew 13.5%/16.7% y-o-y. Ebitda margin improved 510 bps y-o-y to 28.8%; Ebitda grew 44% y-o-y partly led by broad-based improvement in profitability including sports, some moderation in losses of &TV and success of Marathi movie ‘Sairat’. Net profit adjusted for change in accounting treatment pertaining to Ind-AS at `340 crore (+38% y-o-y) was 17% above our estimate led by 13% Ebitda outperformance. Sports business reported operating profit of `17 crore as against our estimate of loss of `25 crore; outperformance is largely attributable to it.