Shares of Zee Entertainment Enterprises (ZEE) experienced a significant decline, reaching an over four-year low of ₹121.65, down 2% during intra-day trading on the BSE. Over the past three days, the stock has fallen by 8% following the release of mixed operating results for the September quarter (Q2FY25).
This drop marks the lowest trading level since April 2020. In the calendar year 2024 alone, the market price of Zee has more than halved, plummeting by 57% compared to an 11% increase in the BSE Sensex. As of 10:47 AM, shares of Zee were trading 1% higher at ₹124.90, contrasting with a 0.14% gain in the benchmark index.
Declining revenues and advertising struggles
Zee's revenue continues its downward trend, with a year-on-year (YoY) decrease of 18% to ₹2,001 crore in Q2FY25, primarily attributed to softer advertising revenue and lower income from other sales and services. This decline follows a particularly strong quarter in Q2FY24, bolstered by the release of the film Gadar 2.
Advertising revenue growth remained lacklustre, declining by 7.9% YoY, marking the eighth drop in the last nine quarters. In contrast, subscription revenue showed a positive trend, increasing by 9.2% YoY.
Positive margins despite challenges
Despite the revenue declines, Zee reported surprisingly positive margins, effectively managing expenses across the board. In Q2FY25, the earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin stood at 16%, a notable increase of nearly 320 basis points quarter-on-quarter. Additionally, the company's profit for the quarter surged by 70% YoY, amounting to ₹209 crore.
However, domestic advertising revenues were adversely affected by a muted spending environment during the second quarter. Management indicated a pick-up in advertising spending in September, coinciding with the approaching festive season. Yet, the long-term recovery of advertising remains uncertain, highlighting a critical area of concern.
Management's outlook and analyst perspectives
Management acknowledged the improved advertising environment in September and anticipates this trend continuing into Q3, given the festive season. However, analysts caution that the absence of a substantial revenue recovery may hinder further margin expansion. They have revised their FY26-27 EBITDA forecasts downward by 8-10%, reflecting the ongoing challenges in advertising growth. Analysts noted, "We reiterate that a significant re-rating should be possible in case of a new partner or buyer."
Furthermore, some analysts stressed the necessity of a sustainable recovery in rural consumption to maintain healthy advertising momentum beyond Q3. They have also revised their FY25 and FY26 revenue estimates downward by 5-7% due to weaker growth in domestic advertising revenue, along with a 3-10% reduction in EBITDA estimates.
Future aspirations and investor considerations
Zee has set ambitious goals, aiming for a compounded annual growth rate (CAGR) of 8-10% in total revenue, alongside a target to improve its EBITDA margins to an industry-leading range of 18-20%. Analysts believe that a sustainable recovery in advertising revenue is crucial to achieving these objectives and for a potential re-rating of the stock. Although Zee's valuations have become more attractive, there remains caution among analysts pending the resolution of ongoing litigation concerning ICC rights, which could influence future investor decisions.For those looking to invest in stocks, monitoring Zee Entertainment’s performance and its strategic responses to current challenges will be essential in evaluating its long-term viability and growth potential.
For android only