Zee Entertainment Rating | Buy — Commendable ad growth in given scenario

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).