Global brokerages mixed on Zee Ent after Q1, eagerly await promoter stake sale

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Zee received one binding offer and is expecting another one in the next few days. One offer is from a financial investor & another from a strategic investor.



Shares of Zee Entertainment Enterprises gained nearly 3 percent intraday on July 24 after strong earnings performance in June quarter (Q1). But global brokerage houses were mixed in opinion as they eagerly await promoter stake sale deal that they expect in next few days.

The stock was quoting at Rs 363.45, up to Rs 2.50, or 0.69 percent on the BSE at 1022 hours IST.

The media & entertainment company, on July 23, reported a 62.56 percent year-on-year growth in June quarter profit at Rs 530.57 crore and 47 percent growth in domestic subscription revenue in Q1.


Total subscription revenue increased 36.7 percent year-on-year to Rs 708.8 crore with domestic subscription business growing 46.7 percent YoY in Q1.

Revenue during the quarter grew 13.3 percent driven by the strong performance of domestic broadcast and digital businesses but impacted by the slow growth of 3.6 percent YoY in advertising revenue in June quarter.

While retaining buy call on the stock with a target price at Rs 515 per share, global brokerage CLSA said results exceeded its estimates led by the jump in domestic subscriptions. The stock trades at 17x FY20 PE, a 40 percent discount to its 10-year average, it added.

Promoter stake sale deal would likely be a key catalyst for the stock, it feels.

However, Morgan Stanley is bearish on the stock having an underweight call with a target price at Rs 370 per share as advertising revenue growth was weak.

Adjusted net profit is broadly in-line with its estimate, Morgan Stanley said, adding company will make a decision on promoter stake sale in the next few days.

"Zee received one binding offer and is expecting another one in the next few days. One offer is from a financial investor & another from a strategic investor," said Credit Suisse about Zee stake sale. It has maintained a neutral call on the stock though it raised price target to Rs 400 from Rs 390 earlier.

The brokerage also increased its FY20/21 earnings estimates by 2/3 percent as the company posted a strong quarter with EBITDA 10 percent above its estimates.

Operating numbers also beat analyst expectations. Earnings before interest, tax, depreciation, and amortization (EBITDA) shot up 33.7 percent to Rs 727.6 crore and margin expanded 550bps to 36.2 percent compared to year-ago. A CNBC-TV18 poll estimates for same were at Rs 624 crore and 31.8 percent for the quarter, respectively.



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