Jinesh Joshi
Despite weak ad-environment, ZEEL reported better than expected performance with EBITDA margin of 16.1% (PLe 14.5%) led by cost optimization efforts and narrowing losses in ZEE5. Since the merger fallout, cost rationalization has been a focal point to drive operational improvement and ZEEL is making steady progress on that front. In 9MFY25, ZEEL’s content and employee cost was down 14% and 9% respectively. Further, EBITDA loss in ZEE5 is at multi-quarter lows indicating a renewed frugal approach in digital business. We believe true operating leverage benefit of the ongoing cost optimization exercise is overshadowed by weak ad-environment. While cost frugality is commendable, recovery in ad-market is critical for re-rating. Retain HOLD with a TP of Rs137 (12x Sep-26E EPS; no change in target multiple).
Top-line decreased by 3.3% YoY: Revenues decreased by 3.3% YoY to Rs19,788mn (PLe Rs20,215mn). Ad-revenues declined by 8.4% YoY to Rs9,406mn due to slower than expected recovery in the market and sluggish festive season. However, subscription revenues increased 6.6% YoY to Rs9,825mn.
EBITDA margin rises to 16.1%: EBITDA increased 52.2% YoY to Rs3,184mn (PLe Rs2,931mn) with a margin of 16.1% (PLe 14.5%). Narrowing losses in ZEE5 and improved cost control led to beat at an operating level. Reported PAT increased 206.7% YoY to Rs1,636mn with a margin of 8.3%. After adjusting for an exceptional charge of Rs809mn relating to Margo Networks, adjusted PAT increased 113.1% YoY to Rs2,422mn (PLe Rs1,750mn).
ZEE5’s revenue increased 8.1% YoY: ZEE5’s revenue increased by 8.1% YoY to Rs2,413mn. 14 new shows/movies were launched including 7 originals in 3QFY25 and EBITDA loss declined to Rs1,362mn.
Con-call highlights: 1) ZEEL’s network share rose 40 bps YoY to 16.9% in 3QFY25. 2) Other sales and services revenue declined due to lean movie calendar and lower syndication revenue. Zee Studios released 2 Hindi and 3 regional movies during 3QFY25. 3) The next tranche of FCCB drawdown is due in Aug-25. However, ZEEL is still in the process of evaluating potential opportunities for deploying funds drawn in first tranche. 4) One B2B deal in digital business concluded in Sept-24, and discussions for renewal are currently underway. 5) In 3QFY25, arbitration with Margo and its network partner concluded, but arbitrator did not admit the claim. To mitigate further litigation, ZEEL has provided the full amount of Rs809mn as a provision for receivables. 6) EBITDA margin target of 18-20% for FY26E remains intact. 7) The arbitration matter between Star India and ZEEL in the ICC TV rights dispute is in early stage and proceedings have begun. 8) A new RIO copy has been filed with revised bouquet prices which should aid subscription revenues. 9) DTA on books is Rs9.6bn. 10) Employee cost has increased on sequential basis due to salary increments. 11) Fresh content in Hindi, Marathi and Bangla was launched in 3QFY25.