Zee Entertainment Enterprises Limited — Q2 FY25 earnings call

Call held 18 Oct 2024

Management summary

Zee Entertainment reported a strong Q2 FY25 with significant margin expansion driven by cost discipline, despite an 18% YoY decline in overall revenues due to advertising headwinds and a high base from prior year's movie sales. Profitability improved substantially, with PAT up 61% YoY. The company is focused on sustaining subscription and digital growth, while cautiously navigating the advertising landscape and managing content investments, including in movies, with a strategic portfolio approach.

Highlights

  • EBITDA margin for Q2 FY25 reached 16.0%, improving by 630 bps from Q4 FY24 and 320 bps QoQ.

  • PAT from continued operations for Q2 FY25 was Rs 210 Cr, marking a robust 61% YoY increase.

  • Overall revenues from operations declined by 18% YoY, primarily due to an 8% YoY drop in advertising revenue.

  • Subscription revenue demonstrated healthy growth of 9% YoY.

  • ZEE5 EBITDA losses narrowed significantly to Rs 159 Crore in Q2 FY25 from Rs 265 crore in Q4 FY24.

  • Cash and cash equivalents strengthened to Rs 17.8 Bn as of September 30, 2024, up from Rs 8.3 Bn on December 31, 2023.

  • The company aims for 18-20% EBITDA margins by end of FY26 and an 8-10% overall revenue CAGR for the next few years.

Concerns

  • SEBI investigation

Key financials

  1. Overall Revenues from Operation — -18%YoY
  2. EBITDA Margin 16%
  3. PAT from continued operations ₹210 Cr +61%YoY
  4. Ad Revenue — -8%YoY
  5. Subscription Revenue — +9%YoY
  6. ZEE5 EBITDA Loss ₹159 Cr
  7. Cash and Cash Equivalents 17.8 Bn

What they filed

Q1 FY27: revenue up 4.5%, net profit down 48.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,001 1,979 2,184 1,825 1,969 −2%2,280 +15%2,025 −7%1,907 +4%
EBITDA323 321 298 239 159 −51%256 −20%-255 −186%100 −58%
Net profit209 164 188 144 76 −64%155 −5%-104 −155%74 −49%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · by end of FY26 · High confidence 18-20%
    Having said that, we remain firmly committed to our 18-20% EBITDA margin aspirations by end of FY26 and believe we will continue to balance the dual objectives of stepping up growth while managing costs very judiciously.

    — Mukund Galgali

Revenue

  • Overall Revenue CAGR (current portfolio) Revenue · next few years · Medium confidence 8-10%
    That is the statement of aspiration we have laid out. That is really a longer-term view of the business when we say current portfolio, which includes all four businesses, linear, digital, movies and music. And what we are implying there is look as a portfolio of those four businesses put together, we would really be aspiring for 8-10% sort of revenue CAGR for the next few years.

    — Mahesh Pratap Singh

Dividend

  • Dividend Policy Dividend · Medium confidence Reinstatement
    It is certainly something that we will take to the Board for consideration. As you know we are paying out 100% dividend this year which is again different from what has happened in the last couple of years. But certainly, we will be going back to the Board to look at the dividend policy and hopefully reinstate it back, given as you rightly said our cash flow position.

    — Punit Goenka

Content Cost

  • Content Spend Content Cost · from hereon · High confidence Inflationary growth
    No, Arun. I don't think there is any more room for us to cut. In fact, you should expect inflationary growth to happen from hereon.

    — Punit Goenka

Risks & concerns

  • SEBI investigation

    high

    SEBI's investigation is independent of the internal committee report submitted to the Board and is a separate ongoing process.

    Both acknowledged

  • Ad revenue headwinds and uneven rural demand

    medium

    Ad revenue declined 8% YoY, and while festive season pickup is expected, sustenance beyond is uncertain due to uneven rural demand.

    Management acknowledged

  • Competitive intensity in the digital market (ZEE5)

    medium

    While ZEE5 losses are reducing, competitive intensity prevents giving a specific breakeven date.

    Management acknowledged

  • Star arbitration case

    medium

    A legal case filed by Star, with proceedings in London, which can be 'very prolonged and can be expensive'; response due by end of the quarter.

    Both acknowledged

  • Inherent risk in movie production business

    low

    Movie production is a 'bit risky business,' but managed through a portfolio approach and underwriting by digital and linear commitments.

    Management acknowledged

Areas of evasion (3)

  • Specific costs associated with the Star arbitration case
  • Specific numbers for movie investment commitments
  • ZEE5 paying subscriber numbers (stopped disclosing)

Q&A highlights

2 direct
Competitive dynamics post Reliance-Disney merger and Zee's movie production strategy. Direct
In terms of consolidation, let's break it up into two parts. One is the linear business... By them coming together nothing much changes except that they may have a little bit more leverage on the advertising dollars... On the digital side... their entire strategy is sports focused whereas our strategy is completely entertainment focused and therefore I do not think that we are really competing in that space or that segment because as I have maintained multiple times that we are not going to enter the sports business very aggressively.

This question addresses the impact of a significant industry consolidation and clarifies Zee's strategic positioning, particularly its entertainment-focused approach and avoidance of aggressive sports investments.

Asked by Abneesh Roy

Binding nature of the independent committee report submitted to the Board on the SEBI investigation. Direct
The report that has been submitted to the Board, and it will not be binding on SEBI. SEBI's investigation is independent of that sir. This was a report that was in process that the Board had instituted within the organization to satisfy themselves and nothing of whatever allegations SEBI has made are of any relevance, so it is respective to that.

This clarifies the legal and regulatory implications of the internal report versus the ongoing SEBI investigation, which is a critical governance concern for investors.

Asked by Sameer Deshpande

Status and potential costs of the Star arbitration case, and internal targets for ZEE5 EBITDA breakeven. Partial
The second part definitely, Akshat, I will not be able to give you an answer because these legal cases are very prolonged and can be expensive... As far as the status of that case is concerned, they have put the claim that you may have seen already in the press. Now we are supposed to respond to that by end of this quarter which we will be doing... right now we will not be able to give you a date when we will breakeven.

Highlights an ongoing legal dispute with undisclosed costs and provides an update on the critical path to profitability for the digital segment (ZEE5), indicating no specific breakeven date due to market intensity.

Asked by Akshat Bairathi

2 min read 5 chapters

Detailed narrative

Strong Margin Expansion Driven by Cost Discipline

Zee Entertainment demonstrated significant improvement in profitability, with EBITDA margins reaching 16.0% in Q2 FY25. This represents a 630 bps improvement from Q4 FY24 and a 320 bps sequential improvement. Management attributed this to 'targeted bottom-up interventions across every element of cost structure and business segment,' including narrowed ZEE5 EBITDA losses from Rs 265 crore in Q4 FY24 to Rs 159 Crore in Q2 FY25. The company remains committed to achieving 18-20% EBITDA margins by the end of FY26.

Mixed Revenue Performance: Subscription Growth Offsets Ad Decline

Overall revenues from operations declined by 18% YoY in Q2 FY25. This was primarily driven by an 8% YoY decline in advertising revenue, reflecting a subdued macro environment, though a pickup was noted in September with the festive season. In contrast, subscription revenue grew by a healthy 9% YoY, benefiting from NTO 3.0 stabilization and price hikes. ZEE5 revenues also saw a 6% QoQ increase, adjusted for a one-time syndication deal in the base quarter.

Strengthened Financial Position and Capital Allocation

The company's cash and cash equivalent position significantly strengthened to Rs 17.8 Bn as of September 30, 2024, up from Rs 8.3 Bn on December 31, 2023, partly due to Rs 2 Bn in FCCB proceeds. Content inventory and advances were reduced by Rs 5.1 Bn over the same period, indicating efficient working capital management. Management stated they are evaluating potential areas for capital deployment within the entertainment genre, focusing on value accretion and opportunistic investments.

Strategic Focus on Content and Digital Growth (ZEE5)

Zee continues to prioritize quality content, which has led to a 100 bps QoQ gain in linear TV viewership share, reaching 17.4% in Q2 FY25. On the digital front, ZEE5 is showing consistent quarter-on-quarter improvement in performance, with growth in paying subscribers and average watch time. While the trajectory of loss reduction is clear, management could not provide a specific breakeven date for ZEE5 due to competitive intensity, but affirmed it's 'within the horizon' for analysts to model.

Competitive Landscape and Regulatory Overhangs

Management addressed the competitive dynamics following the Reliance-Disney merger, noting that while the combined entity might gain leverage in advertising, Zee's entertainment-focused strategy differentiates it from their sports-centric approach. The company also acknowledged the ongoing Star arbitration case, stating it can be 'prolonged and expensive,' with a response due by quarter-end. Furthermore, the internal committee report submitted to the Board regarding SEBI's allegations is 'not binding on SEBI,' indicating the independent nature of the regulatory investigation.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Media, Entertainment & Publication earnings calls