(CMP – Rs. 174, MCap – Rs. 16,708 crore)

Zee Entertainment reported a disappointing set of results for Q1FY21. While operating revenues were tad better than estimates (largely led by higher other sales and services), overall miss was led by sharper than expected ad decline and higher than expected operating and other costs.

Q1FY21 Earnings Summary

– Overall revenues came in at Rs. 1312 crore, down 34.7% YoY, (our estimates: Rs. 1252 crore) impacted by ad revenues which declined by 64.5% YoY to Rs. 421.1 crore. Domestic ad declined by 66.1% YoY at Rs. 421.1 crore, vs. our expectations of ~60% YoY decline. The weak ad revenues were owing to Covid-19 led lockdown which led to no fresh content resulting in ad volumes declines. The overall subscription revenues grew by 5% YoY to Rs. 744.3 crore, led by – 6.2% YoY growth (our estimates: 8.2% YoY) in domestic subscription to Rs. 662.5 crore which was driven largely by Zee5 subscription growth. The company reported Zee5 revenues of Rs. 94.9 crore during the quarter. The other sales and services revenues at Rs. 146.6 crore, was largely due to sale of rights of movie to OTT platform

– EBITDA came in at Rs. 219.9 crore, down 66.7% YoY, and well below our expectations of Rs. 350 crore, largely due to higher employee and operational costs (purchase of licensed content for linear and digital businesses and continued amortization cost of movies and digital shows). The resultant margins at Rs. 16.8%, were down ~16 percentage points, and well below our expectations of 28%. Zee5 reported operating losses of Rs. 145.1 crore for the quarter

– The other income was affected by Rs. 112.3 crore MTM change in fair value of preference shares. Consequently, the company reported PAT of Rs. 30.4 crore against expected PAT of Rs. 236 crore

– On the balance sheet front, inventory and advances for content remained stable at ~Rs. 6300 crore vs ~Rs. 6410 crore in Q4. Receivables reduced QoQ by Rs. 350 crore to Rs. 1735 crore, which is a key positive

The performance of the quarter was weak on the ad revenue front and only saviour remained stable subscription revenues. Among other positives, working capital improvement and better disclosures on balance sheets, digital and cash flows is a welcome change. Management commentary on ad volumes recoup and business outlook will be key. We will come out with an update soon.

Shares of ZEE ENTERTAINMENT ENTERPRISES LTD. was last trading in BSE at Rs.173.95 as compared to the previous close of Rs. 169.9. The total number of shares traded during the day was 2630008 in over 15525 trades.

The stock hit an intraday high of Rs. 178.85 and intraday low of 165.3. The net turnover during the day was Rs. 454005267.