Buy Zee on improved outlook: Edelweiss

By: | Published: April 21, 2015 12:15 AM

Maintain ‘buy’ on Zee Entertainment Enterprises (Zee) with target price of R419 a share, valuing the stock at P/E of 33x FY17e EPS...

Maintain ‘buy’ on Zee Entertainment Enterprises (Zee) with target price of R419 a share, valuing the stock at P/E of 33x FY17e EPS.

Improving ad outlook (12.6% y-o-y growth estimated by GroupM), best play on digitisation, product innovations and net cash of ~R1,700 crore are key positives. At CMP, the stock is trading at 36.7x and 26.8x FY16e and FY17e EPS, respectively.

Irrespective of higher subscriber additions by DTH or cable operators, broadcasters like Zee will be one of the safest and most attractive plays on the digitisation theme. Among listed players, the company is best placed to benefit due to its huge brand and bouquet of 33 domestic and 36 international channels. Also, it is underpinned by sturdy free cash flow, a secular growth story and stable dividend policy.

We have factored in the possible loss of &TV in our numbers; we believe it could clock loss of R500-700 crore over the next 3-5 years and break even only thereon.

We recently interacted with Punit Goenka, MD & CEO, Zee. Anchored by an impressive debut, he is positive on &TV — anticipates breakeven in 3-5 years.

Though the renewed deal with Pakistan Cricket Board is indeed a feather in the cap, the management expects it to widen sport loss in FY16.

Success of &TV is crucial for Zee (~22% market share including Zindagi and &TV) if it has to challenge Star Plus’ and Life OK’s ~37% combined market share.

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