Below par FCF generation in FY19 a negative; TP cut to Rs 440; ‘Buy’ maintained
ZEEL’s Q4 ad growth at 16% was higher than our est. (+11%) which led to EBITDA beat at Rs 5.7 bn (our est. at Rs 5.1 bn) — such growth despite TRAI’s NTO headwinds is commendable (Sun TV reported 1% decline in Q4 ad revenue). However, competitive intensity resulted in significant rise in content-related advances (much higher than its earlier guidance, but in line with industry as per mgmt), resulting in stretched working capital and restricting FCF generation (Rs 2.3 bn in FY19 as against PAT of Rs 15.7 bn).
While fruits of this initiative are yet to be seen, it would bring ZEEL’s RoCE focused investments under check in the interim. To factor in the same, we cut our target PE to 20x (25x earlier), resulting in revised TP of Rs 440. Maintain Buy given strong presence in Hindi and regional languages, which makes it relatively well placed to attract international strategic partner (by Jul’19, as per mgmt).
Q4 consolidated revenue grew 17% YoY to Rs 20.1 bn (domestic ad +18%, subscription +4%; other rev +83% on higher no of movies released); EBITDA grew 13% YoY to Rs 5.68 bn (EBITDA margin down 120 bps YoY to 28.1%); adj. PAT stood at Rs 3 bn (declined 8% YoY).
FY19 performance: Ad revenue grew ~20%, domestic subscription grew 17%, while international subscription revenues was flat YoY; Other revenue grew 30% to Rs 5.9 bn. Revenue grew 19%, EBITDA grew 24% (EBITDA margin up 130 bps at 32.4%), while PAT grew 20% to Rs 15.9 bn.