Zee Entertainment Q2 preview: Pressure on ad rates likely to remain a drag on bottom line

MUMBAI: Broadcaster Zee Entertainment Enterprises may post around 50 per cent decline in net profit in the quarter ended September, while net revenues may have dropped up to 28 per cent as advertising rates continue to reel under pressure due to the ongoing Covid-19 pandemic, and subscriptions revenues may be flat on a high base.While industry-wide advertising revenues have been improving gradually, they still remain under pressure as corporate spending has not yet picked up fully amid the current economic slowdown.Analysts also hope for better cash generation, sustained balance sheet improvement and update on funds recovery on sale of overseas investments earlier this year.Kotak Institutional Equities expects Zee Entertainment to report a decline of 53.3 per cent in the net profit from a year ago, while it believes net sales may have shrunk 17.4 per cent.Kotak analysts expect 25 per cent decline in ad revenues (down 65 per cent YoY in 1Q) and modest 2 per cent YoY growth in domestic subscription revenues.They foresee a decline in EBITDA margin by 900 basis points (bps) to 23.6 per cent, largely due to revenue decline and partly due to higher inventory amortization.Anand Rathi expects Zee’s revenue to drop 18.8 per cent YoY due to a 30 per cent YoY fall in domestic advertising revenues and flat YoY growth in domestic subscription revenues. It also expects the EBITDA margin to contract 1,070 bps YoY to 22 per cent, though it may rise 520 bps on a QoQ basis.Edelweiss expects Zee to report a 49.9 per cent drop in adjusted profits, while revenues may have dropped 17.6 per cent.“With the economic activity gradually picking up across the country, we expect Q2FY21 to be a much better quarter for ZEE owing to: i) improvement in the advertising environment; ii) resumption of fresh programming on GEC channels; and iii) reasonable recovery in viewership share across key markets (Hindi, Tamil, Marathi).,” Edelweiss analysts said in a note.“However, given that full economic recovery is yet to transpire, ad rates are likely to remain under pressure,” they added.The brokerage expects advertising revenue to dip around 28 per cent YoY (65 per cent dip in Q1FY21) in Q2FY21 for Zee, while subscription revenue growth is likely to be flattish at 2.5 per cent owing to a high base (27 per cent domestic subscription growth in Q2FY20). That said, content cost and marketing expenses are likely to inch up.

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