LKP Securities

Target: ₹268

CMP: ₹208.60

We like Zee Entertainment Enterprises on improving corporate governance, granular disclosures, strengthening of its board and focus on ZEE5 to drive subscription growth.

Management has guided for lower movie purchases and reduced working capital requirement in FY21. Given the hyper-competitive nature of the OTT space, we believe that it would continue to see investments for sustainable growth, especially with the presence of numerous global players.

We however believe that ZEE5 is well placed to improve its traction leading to revenue improvement and loss reduction, as we think that international subscriber base that is looking for Indian content may be sticky. In our view, the first leg of multiple re-rating will happen along with the changes in Q1 and consistency in balance sheet improvement, with FCF generation providing further re-rating in the ensuing quarters. Ad revenues are expected to bounce back from Q2 as new content resumes across the genres and regions.

Also with festive season starting from October, we believe Q3 to be at par with last year’s Q3, if not better. We believe that revenues and EBITDA are bottomed out in Q1 and will witness a significant improvement hereon. We expect a 600 bps improvement from Q1 levels to FY 21.