Zee Entertainment Enterprises Q3 profit slumps 92%: What should you do now?

CLSA has maintained a “buy” rating for Zee with a target of Rs 325 per share.

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Zee Entertainment Enterprises share price will remain in focus on February 14 a day after company announced its December quarter earnings.

Zee Entertainment Enterprises (ZEE) has reported a steep drop in its consolidated net profit for the October-December 2022 quarter. The company’s net profit fell by 92 percent to Rs 24.3 crore, compared to Rs 299 crore in the same period a year ago. Its revenue from operations remained flat at around Rs 2,111 crore, down 0.1 percent on-year. Zee’s advertising revenue also saw a decline, falling to Rs 1,063 crore from Rs 1,261 crore in Q3 FY22.

Several exceptional items, including provisions for Zee Learn’s insolvency case and receivables from Siti Networks, as well as a one-time bonus as part of a talent retention plan, affected Zee’s bottomline. These exceptional items aggregated to Rs 169 crore. Additionally, the company’s EBITDA fell 27.5 percent YoY to Rs 343.8 crore against Rs 479 crore, while operating margins contracted to 16.3 percent from 22.7 percent due to elevated investment in content, marketing, and technology.

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In response to Zee’s performance, Citigroup has given the company a ‘buy’ rating and cut its target to Rs 280 per share. The brokerage firm cited challenges in subscription growth and lower ad revenue as factors that impacted profitability. It has also cut its FY23 earnings estimate by 35 percent due to near-term market uncertainties.

CLSA has maintained a ‘buy’ rating for Zee with a target of Rs 325 per share. Despite the lacklustre Q3 performance, the firm sees the upcoming Zee-Sony merger as a potential re-rating catalyst. Zee-Sony merger awaits NCLT order, and a hearing is set for today.

Despite the recent drop in net profit, Zee’s revenue from its ZEE5 platform has grown by 16 percent on an on-quarter basis. Zee also has a net cash balance sheet, and working capital expansion. The market will be closely watching the outcome of the NCLT hearing on February 14.

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