Zee Entertainment Enterprises Ltd's Q2FY19 consolidated net profit declines 21.22% yoy to Rs386.67cr: Beats Estimates

The company’s consolidated revenue stood at Rs1,975.86cr, up 24.89% yoy and 11.5% qoq.

Oct 10, 2018 11:10 IST India Infoline Research Team

Zee Entertainment Enterprises Ltd Q2FY19

Consolidated Results Q2FY19: (Rs in cr)

Q2FY19 YoY (%)
Revenue 1,975.86 24.9
EBITDA 676.29 37.6
EBITDA Margin (%) 34.2 316
Net Profit (adjusted) 386.67 [21.2]
***EBITDA margin change is bps

Zee Entertainment Enterprises Ltd’s revenue grew by 24.9% yoy and 11.5% qoq to Rs1,976cr. The revenue increased on account of strong advertisement revenue growth owing to higher ad spends across categories and increase in its network viewership share. EBITDA came in at Rs676cr, up 37.59% yoy and 19.5% qoq. EBITDA margin expanded by 316bps yoy and 228bps qoq to 34.2%. The company’s adjusted net profit stood at Rs387cr, down 21.2% yoy and up 18.5% qoq. Revenue and EBITDA stood above estimates of Rs1,849cr and Rs577cr, respectively.

• Advertising revenue for Q2FY19 stood at Rs1,211cr, recording a growth of 22.7% yoy.
• Domestic advertising revenue grew 23.3% yoy; although aided by a softer base, it was driven by robust demand across key categories for TV advertising and ZEE5's contribution to advertising revenue.
• Subscription revenue rose 21.3% yoy to Rs608cr.
• ZEEL was the No.1 television entertainment network with an all-India viewership share of 19.9% in Q2FY19 vs. 19.2% qoq.
• Programming cost for the quarter increased 25.5% yoy to Rs726cr driven by higher content cost for ZEE5, movie production costs, and elevated movie amortization costs for the broadcast business.
• Advertising, publicity, and other expenses for the quarter grew 22.5% yoy to Rs405cr due to higher marketing and promotion costs for ZEE5 and movies released during Q2FY19.
• Employee benefit expenses stood at 8.5% of revenue vs. 11.5% yoy, which aided EBITDA margin expansion. Further, some of the employee expenses have been reclassified to other expenses.
• Other income declined to Rs59cr vs. Rs203cr yoy resulting in a drop in the net profit despite margin expansion.

ZEE5 performance metrics
• In September, ZEE5 had 41.3mn monthly active users (MAU), recording a growth of 190% compared to April 2018.
• Over the same time, video views grew 340% and videos viewed per user almost doubled, leading to a significant improvement in user engagement.
• ZEE5 users currently spend an average of 31min per day on the platform.
• ZEE5 has been consistently amongst the top-5 free and the top-3 grossing entertainment apps as per the Google Play Store rankings.

Zee Entertainment Con Call Highlights

• The management maintained its earlier guidance of margins to remain just over 30% despite much higher margins in Q2FY19 at 34.2%. This is due to higher content and marketing expenditure on ZEE5 as it got launched internationally as well.
• Time spent per session/user is increasing continuously on ZEE5; breakeven is expected to take five years.
• The company has ~Rs2,700cr cash surplus (current investment + cash and cash equivalent) in Q2FY19. This includes cash held abroad received from Ten Sports sales proceeds. Part of the cash will be used for ZEE5’s launch overseas. Surplus cash would be brought to India in a tax-efficient manner as repatriation of cash attracts tax for the company. Until then, the company has invested in less risky liquid investments.
• The company expects monetization of network share gain in the coming quarters which is likely to result in strong advertisement revenue growth going forward.
• The recent deals with Airtel and Jio TV have not yet started contributing to the company's revenue.
• The management also mentioned that the proportion of regional language content consumption was higher than that of Hindi language content consumption on ZEE5.
• The management clarified that there are no one-off items in the advertisement and subscription revenues.
• 90% of ZEE5 users are on mobile. Hence, there is less duplication as multiple users do not access the app through the same account.
• ZEE5 is not yet releasing one series per month in all six languages. However, it will soon start releasing at this rate.
• Advertising spend was up 17% yoy only despite higher ZEE5 related expenses. However, the base quarter had brand refresh and 25th year anniversary related spend.
• ZEEL is expecting ZEE5’s contribution to reach ~30% of the total revenue in five years.
• Telco subscribers (JIO TV and Airtel TV) can access Zee’s channels directly from telco apps. However, if subscribers have to access the originals or exclusive movies then they will be routed to ZEE5 app. Further, Zee will have all the access to customer data.

Technical View:

Zee Entertainment Enterprises Ltd ended at Rs. 459.20, up by 27.45 points or 6.36% from its previous closing of Rs. 431.75 on the BSE.
The scrip opened at Rs. 435.95 and touched a high and low of Rs. 465.90 and Rs. 435 respectively. A total of 84,57,303 (NSE+BSE) shares were traded on the counter. The stock traded above its 200 DMA.

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