Zee Entertainment Q2: Double-Digit Rise In Profit Likely On Lower Tax Cost

Zee Entertainment Enterprises is expected to report double-digit growth in second quarter profit driven by lower tax expenses, despite margin pressure and slow revenue growth.

The stock corrected 22 percent during the quarter ended September 2019 and fell 45 percent year-to-date amid debt concerns and corporate governance issues.

Kotak Institutional Equities, Sharekhan and Motilal Oswal expect second quarter profit growth in the range of 20-30 percent compared to the year-ago. Last month, the government had cut the corporate tax rate by 10 percent to revive earnings and economy.

Revenue growth for the quarter is expected to be around 6 percent due to slowdown impact on advertising segment, but domestic subscription revenue is likely to be in double-digit.

“We expect modest 3 percent YoY growth in advertisement revenues largely due to a weak ad environment, the impact of withdrawal of free-to-air (FTA) channels from DD Freedish and slight weakness in viewership of the flagship channel Zee TV. We model 18 percent YoY growth in domestic subscription revenues,” said Kotak which expects 6 percent revenue growth.

Emkay Research also expects more than 6 percent growth in topline. It feels advertising revenues should grow only 2 percent YoY due to macro-economic weakness and TRAI tariff order implementation while domestic subscription revenues are expected to grow 25 percent YoY, driven by recovery post tariff order with better realizations in regional markets.

According to the brokerage, International revenues (ad + subscription) are expected to remain subdued, with some channels moving out of the FTA regime.

At the operating level, the margin may see contraction due to slow pace of revenue growth coupled with higher content cost on account of amortization of ZEE5’s content, and investment in traditional and movie content.

Kotak expects a 240 bps YoY decline in EBITDA margin partly due to weakness in revenue growth and higher movie amortization expenses, while Emkay sees 131 bps contract in margin YoY as it feels programming costs are expected to rise 11.3 percent YoY on account of content launches on ZEE5 and the core TV business.

Utilization of cash and cash generation in the first half of FY20, progress on the promoter stake sale, domestic advertising revenue and subscription revenue would be key things to watch out for.―Money Control

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