Zee Q4 results: Should you buy, hold or sell after Q4 earnings? Here’s what brokerages say

Zee Entertainment Enterprises Ltd (ZEEL) share price recouped losses after hitting a 52-week low of ₹175.80 per share in the early morning trade on Friday. The stock rose over 5% from the low and was trading in the green.

The media giant posted a net loss of ₹196 crore in Q4FY23 as compared to a net profit of ₹181 crore in the corresponding period last year. The company’s revenue declined 9% to ₹2,112.1 crore from ₹2,323 crore in the year-ago period.

Higher sports operating expenses, weak ad-environment and widening losses in ZEE5 led to a sharp plunge in EBITDA margin to 7.2%.

Read here: Zee Entertainment Q4 Results: Firm reports net loss of ₹196 crore; EBITDA plunges 71%; key highlights here

Continued weakness in ad revenue due to inflationary environment continues to dampen the revenue visibility of the segment, analysts said. 

Many brokerages have cut earnings growth estimates after Zee’s weak performance. Here’s what brokerages suggest on Zee after Q4 earnings.

Prabhudas Lilladher

Prabhudas Lilladher cut its EPS estimates by around 21% over FY24E/FY25E as it believes widening losses in ZEE5, entry into sports and sluggish recovery in ad-environment is likely to dent profitability in near term. 

“In light of the ongoing challenges, we cut our target multiple to 19x (earlier 21x) and roll-forward our valuation to FY25E as NCLT has directed exchanges to re-examine approvals granted earlier and issue an NOC which can cause some delay in merger time-lines. We expect sales CAGR of 9% over next 2 years with an EBITDA margin of 15.4%/18.5% in FY24E/FY25E,” the brokerage house siad.

It retained a ‘Buy’ call on the stock and cut the target price (TP) to ₹240 from ₹277 earlier. It believes delay in merger and slower recovery in the ad-environment can act as a key overhang in near term. 

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Motilal Oswal Financial Services

The brokerage house has cut its FY24 earnings estimate by 16% led by continued investments in both digital and linear content and a weak revenue outlook in near future. It, however, maintained its FY25E earnings. 

The merged entity with a revenue potential of around ₹16,000 crore and EBITDA margin of 18% is trading at 6.5x EV/EBITDA on FY23 basis. But merger timelines remain a key monitorable. The stock trades at an attractive valuation of 15x FY25E P/E. This is much below its historic multiples of 25-30x about three years back, Motilal Oswal noted.

The potential re-rating will be governed by recovery in the ad market, and completion of the Sony merger deal, given the strong market position of the merged entity and the growth opportunity ahead, it said.

Motilal Oswal maintained a ‘Buy’ rating on the stock and cut the target price to ₹210 per share, valuing the stock at 18x FY25E EPS.

Emkay Global 

Emkay Global believes Zee’s Q4FY23 results reflect continuous muted ad trends across the industry. Ad revenue declined by 10.2% YoY, while roadblocks surrounding NTO3.0 implementation prevented any uptick in subscription revenue as well. Higher content investments in ILT20, movies and Zee5 resulted in margins slumping to a multi-year low. 

“While FMCG companies have started highlighting increased spending on advertising, Zee is yet to see any meaningful impact on its revenue. Though NTO3.0 has finally been implemented, uptick in subscription revenue should happen only with a lag. Zee5’s EBITDA losses have further widened, though management expects losses to moderate going ahead,” it said.

Considering these factors, the brokerage has reduced its FY24/25 EBITDA estimates by 5.6% each to arrive at a revised target price of ₹245.

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Axis Capital

Axis Capital cut FY24-25 EBITDA estimates by around 11% to factor in the elevated content costs and slower ad growth recovery. 

However, the brokerage upgraded the stock to Buy from Add but cut the TP to ₹220 per share from ₹235 earlier. NCLT approval for the ZEEL-Sony merger remains the key trigger; the management highlighted that all the disputes related to ZEEL have been settled, the brokerage noted.

Zee share price is down over 23% YTD. At 12:00 pm, the shares of ZEE were trading 2.91% higher at ₹183.95 apiece on the BSE.

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