Zee Entertainment rating: ‘Buy’; Covid-19 took a toll on ad revenue in Q1

Zee Entertainment Enterprises’ (ZEEL’s) Q1FY21 revenue came in line; however, Ebitda and PAT belied our estimates. Ad revenue plunged 65% y-o-y (66% dip in domestic ad revenue) leading to 34.7% and 67.0% y-o-y decline in revenue and Ebitda, respectively. Domestic subscription growth remained modest at 6.2% y-o-y. ZEEL’s digital platform ZEE5 clocked Rs 949 mn revenue against Ebitda loss of Rs 1.45 bn. For FY21, we believe with major impact on ad revenue due to Covid-19 felt in Q1, resumption of fresh programming and a strong market share will benefit ZEEL through the year.

Key positives under ZEE 4.0: (i) R. Gopalan (Independent Director) will be the new Board Chairman; (ii) three-four new board members will join in FY21; and (iii) working capital (down ~Rs 3.9 bn q-o-q) and content investment to moderate going ahead. We remain positive on ZEEL’s long-term prospects and maintain Buy.