Market share gains should ensure industry-leading ad revenue growth; rating upgraded to ‘Buy’ with TP revised to Rs 638 from Rs 620.
Zee Entertainment Enterprises (ZEEL) is currently witnessing the best of times in its content performance with market share gains across channels. The company over the last 4-5 years has aggressively invested in its portfolio of channels with emphasis on regional markets. Also, post the company divesting out of sport channels, its investment in movies and GEC content has risen and is showing up in improved market share.
ZEEL’s investment in content is visible in the sharp increase in inventory by Rs 9.4 bn, impacting cash flows in FY18. The market share gains should mean ZEEL will be able to outperform industry ad revenue growth assuming the market share sustains at current levels. Also, the company is expected to spruce up its ZEE5 — OTT offering with significant original programming launches in the next two months, which should help us in appreciating the potential of Subscription Video on Demand (SVoD). With the recent decline in share price, we see the risk-reward favourable. Upgrade to Buy with a revised target price of Rs 638 (30x FY20 EPS) from Rs 620 earlier.
Strong channel performance to drive ad revenue growth
Zee TV has been gaining market share in Hindi GEC primetime viewership from 13% in Jan’17 to 22%. In south regional markets, it has been steadily improving share in Tamil while maintaining strong share in Telugu and Kannada with ranks 1 or 2. In Marathi, it maintains strong leadership while it recently gained leadership in Bangla too. We believe ZEEL will outperform industry ad revenue growth on the back of strong channel performance and recovery in ad spends. We estimate ad revenue growth of 17% and 15% in FY19 and FY20 respectively.
Zee TV — gains share: Zee TV’s share has been improving over the quarters from 14.2% in Q4FY17 to 20.0% in Q1FY19-TD, gaining leadership in the space with 22% share in recent weeks. Zee TV has gained numero uno position in a number of key timeslots between 9.00 pm and 11.00 pm and improved its share in slots where it already had leadership.
ZEEL to significantly increase original content on ZEE5
ZEEL is expected to release a number of original shows on its OTT platform ZEE5 in the next 1-2 months along with ad campaign centred around the content on the platform. Company is planning to launch a number of original programmes in the near term with shows like ‘Karenjit Kaur’ – a biopic of Bollywood actress Sunny Leone. Currently, ZEE5 has >20 original shows and the company is planning to have >90 original shows by FY19 end.
Content investment necessary
ZEEL stepped up content investment in FY18 as reflected in the sharp rise in inventory by Rs 9.4 bn from Rs 16.9 bn in FY17 to Rs 26.3 bn in FY18. Company has increased investment in movie content across languages for its movie channels as well as OTT platform ZEE5. It is also targeting to fill up gaps in its channel portfolio by launching movie channels in regional markets. With increased competitive intensity, content investments are expected to remain at elevated levels.